Transcripts For BLOOMBERG Bloomberg Markets Asia 20171218

China out prices in in half an hour. 4898, it tells you what has been going on since 2006. The white line indicates firsttier city performance. We have had this massive runup in june 2015. Ever since, we have seen this fall back. It has been muted for secondtier and third tear cities. We have early data from china real estate showing a sharp rebound in tier one cities and tier three cities. Is the result of strict controls during the october Party Congress unwinding, so the possibility of a turnaround. All will be revealed after xi jinping said houses are for living in, not for speculation. The lastding day of week in this part of the world, singapore, taiwan, and malaysia kicking things off. Sophie the countdown to christmas, risk on for markets with the u. S. Tax bill passage looking likely. We have the Malaysian Ringgit and the won leading declines against the dollar, and the yen looking to test 113. We have u. S. Key Economic Data deck this week. Shares mostly climbing. The kospi looking little change. Shares in singapore up on better than expected exports. Requesting a trading a majoritytakes stake in another brewer. Rising, japanese trade figures to digest, 12 straight months of yearly growth in exports for japan, so that recovery kicking on. Rishaad japan export recovery fueling corporate profits, but nomura expecting growth to slow down next year. What is the thinking behind all of that sophie . Sophie the risk factors are u. S. Policy tightening, normalization of boj policy, but longterm expansion in Japanese Corporate earnings looking to remain intact. 18002000forecasting range for the topix. This morning, financials and materials are leading the topix higher with toyota, sony among the biggest contributors. You have Construction Companies among the biggest drags on the topix. One sliding over 4 . Its headquartersuction did conm was searched by prosecutors amid a probe into antimonopoly violations. Some movers in sydney. One jumping the most on record after oracle agreed to buy the company and a cash deal for 1. 2 billion. Zon slipping after it rejected a draft decision. Those are some micro moves. We also have chinese property prices on deck. Rishaad should be there in 25 minutes. Thank you. News of an election in south america, lets find out more. Sebastian pinera is said to win the president ial chile. N in his 55 would be a relief for the Business World after four years of the most radical reforms in decades under the previous president. Failure to take command in the first round lead to a market selloff. The vote for the president ial candidate for the African National congress has been delayed a second time with almost 10 of Party Delegates being excluded. There are only two people left deputyrace, then president and jacob zumas exwife. The Bitter Campaign has divided the anc. Turnbull has regained his one seat majority in parliament after a former tennis star won an election in sydney. Swingting saw a 5 against the liberal coalition that would see it defeated if replicated across the country in the general election. A poll Shows Government trading the labour party by six points. Foreigns biggest investor is buying more treasuries. Holdings of u. S. Debt rose a . 4 billion in october 2 almost 1. 2 trillion. Beijing is building currency reserves amid capital controls. Japan fell for the Third Straight month. The two countries account for more than one third Foreign Ownership of treasury. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Rishaad looking at the Hong Kong Exchange. Proposing to let Innovative Companies list with a dual class share structures. We have more on this. This has been hugely controversial. What does the Hong Kong Exchange hope to achieve here . Ipos goingseen big around the world, shopping for the best conditions on which they want to list, so hong kong in the last 1015 years has lost out on some of the biggest Chinese Tech Companies to new york. Rishaad tell me the advantages with a dual class share structure. This allows founders of companies to maintain control while holding a minority of shares because they have a special weighting. Popular with Technology Stocks where founders are innovators and bring to the table more than just money. Rishaad the question is what do we know about these proposed changes . There will be i round of consultations and regulatory emphasis is on allowing Innovative Companies who applied for dual class share structure it is not a guarantee they will get dual class share structure. There are subjective tests the applicants will be put to, and the shares themselves would only be held by directors. If the director were to leave the firm, the special boating class of share would no longer apply, so there are limitations to how the shares would work. Rishaad what needs to happen now . What happens with these proposals as the Securities Commission looks at it closely . Is there sign off on this, or is it a done deal . I dont rank we would have think we would have gotten that far if the Security Commission was opposed to it. In government has weighed its support for the change and having a dual class share structure and be more as a Financial Services center. The regulators have given their blessing. There will be another round that will happen in the First Quarter of next year. Once that process is complete within the first half of next expect to we can happen see this go into force and we will have our first applicants and listings of companies under a dual class share structure. Rishaad thank you very much indeed for that. Headlines coming through from the austrian treasurer, speaking, Scott Morrison, talking about the budget. Australia zynga deficit of 23. 6 billion australian dollars 20162017, much less than the estimates of 29. 4 billion. Seeing a return to surplus in three years, 2021. Inflation 2 next year. That is in line. 2. 5 growth for the year ahead, this year i should say, versus what he five basis points, 2. 5 percent, which is the estimate in may. The economist had been looking at the deficit of 25. 7, so they are seeing it slightly narrower than that. Looking ahead, some predicting a bobby ryan for china next year. We have the news from bnp paribas with the reaction and latest house prices. Coming up next, our guest speaks about why he is advising caution if you want to invest in the u. S. Markets. This is bloomberg. Equities having quite a yen, generalker economic recovery, helping to stoke earnings or the other way around. Lets see if he can keep going with our next guest. Gg before the chicken, corporate profits, nominal gdp doing well. Tell as white numerous things this will go in the other direction and we will see corporate profits under pressure in 2018 . All their know arguments, but i can see a case where people have said we have had a strong run in japan, corporate profits more than doubled. They were globally good, particularly strong in japan. That sort of pace you wont see. Bethat sense a slowdown with the prudent thing to forecast since it is hard to underpriced relative to how it is performing as an economy, i dont think that is a bad thing for the stock markets. Rishaad the corporates have money on their balance sheets, do they not . Does that translate into wages . Is that the root of inflation the boj wants . Is more of assue political question in the case of japan because it is one of the things the Prime Minister desperately wants from a political perspective. Inflation for most japanese voters, and that is what matters, is not clear whether it is a good thing or bad thing. Rishaad they do want more money in their pockets, dont they . Its one thing to increase understanding or abenomics, not to talk about inflation, but wage increases, but there will number,slightly bigger but i dont think that is the main story in japan. There will be modest wage increases Going Forward. There will be a political noise trying to put emphasis and Pressure Companies or shame them into raising wages. It will happen to some extent, but that is not what matters. What matters is they get the right Monetary Policy mix. Rishaad do they not have it now . They are too tight for my taste. Rishaad the bank of japan . That is why we are missing the inflation target. Rishaad how did we become looser here . Let me finish. They could become looser, and personally they should steepen if they choose the tool of yield curve control, then they should steepen the curve. My preferencethey would do it by lowering the short and deeper into negative territory, which sounds experimental in japan, but economies like sweden, switzerland, denmark have done it, and they have done more. That would have been more appropriate. Where we are now, it does not matter much because japan is lucky to have a global cyclical recovery going on them a so without the boj doing anything come of conditions ease automatically. If this global momentum goes away, and eventually it will, the pressure will be for them to keep easing or ease further if they are serious about meeting their 2 overshoot target. Remember it is an overshoot target and they are too far away. Rishaad build the yield curve and they will calm . So far they are just sitting on their hands. Rishaad you mentioned what is important Monetary Policy wise, but what has been important and abenomics has been the weakness in the yen. We have seen stocks going up, but that correlation has broken down. That is a good thing . That is a good thing. Yen, but not was an important element, but tight,ther policy was easy, or too tight, and that is another point in what we discussed earlier. The yen has been strong for a while, and there you see the tightness of the policy. Now it is getting softer, but that is more of a global thing. Rishaad im not going to drill too much on european equities, but caution for u. S. Equities. Why . The u. S. Is the most expensive. There is nothing wrong with the , the direction is positive, but other markets like japan and europe are more attractive in relative terms. We maintain a tiny overweight in the u. S. , but have shifted recently and remain slightly more favoring japan and europe in particular. Rishaad there has been this move towards defensive come out of growth towards value growth, value being left behind. This does smack of late cycle equity trading, does it not . I believe so. We will see if it is there to stay, but that is what has been happening recently. There are other signs that are bullish, but still late cycle. For example, the mania, cryptocurrencies, bitcoin, signs of exuberance, and you have it in other areas. We think that is a cautionary tale, but we prefer to build up some cash reserves because we do think the market is due for a strong run and we could see a correction coming in the next few weeks. Rishaad stick with us if you would. Loads more to discuss. He is a global strategist for lgt Capital Partners. This is bloomberg. Back withou are Bloomberg Markets and we continue our discussion with lgt partners. We were coming to valuations in the u. S. They are expensive relative to others. Tell us why. A similar story with japan in terms of valuation. It is cheaper. It has good Earnings Growth. Is that has not been appreciated in japan by the market for reasons that are hard to understand, political, a lections in germany, elections in germany, other elections that raised issues, political issues within the eu. That is going away with germany looking like it will have a stable government, and the macro is fine in europe, one of the best. Rishaad a couple of years ago all we could talk about yields, 20 ,ear 3. 5 now, and portugal, recent Investment Grade as well. Yes. The economy is doing well in europe. You can say that is because of of ecb, but it is because Monetary Policy because that is an important thing, so europe is doing well. Pmis have more positive momentum than any other region in the world, so it is not reflected in equities prices. You can see that in earnings. Earnings are doing well. It is not yet reflected in prices and the market will close the gap eventually. Rishaad one of those things you have highlighted is the risk looking ahead, the possibility of this cyclical, or should i say this Global Growth story goes away. Suddenlyke that dont disappear, but what of the other risks . That is more mediumterm, not the next couple of quarters. There are two risks. Haves an outside risk, we continued acceleration in the global economy, at least in the four large economies, which is something you see in the pmi indices, and some Central Banks might be overzealous in terms of signaling a tightening of policies. In the u. S. Over the past couple of years looking back the initial plans of the Federal Reserve proved a little premature, and that might first of all, it might happen inin, but it might happen the u. S. And japan. We think it is better to be on the cautious side with short and durations. That is why we have raised a little cash. We are still overweight equities. Rishaad do you move away from growth to value in these parts of the world . Is that the narrative looking ahead . Atthat is not how we look things. We may be different in our approach here. We take a regional view on economies and let the Equity Managers to the sector selection. Selection. Sector it is a Stock Selection from which a Sector Allocation results. I would not frame it in those terms. Slightlyhen you take a more cautious view, the doesation in equity part tend to be more defensive, and i would suspect that is the case now as well, but it is not an explicit view because we have an overall positive view on the economy. Rishaad lets go back to your first answer and ended that way wayt it that way as well. What about european policy . European policy is right. We are in a sweet spot. The japanese framework is improving. With the economy performing as it is him as long as centralbank study the course, keep the course of study, i am looking ahead a little bit a couple of months or a bit more may be, and there i see the risks in japan being perhaps too tight. In europe, they are ok, just stay the course. Rishaad always a pleasure. Lgt Capital Partners with thoughts looking into 2018. This is bloomberg. Rishaad hong kong there. There we go. Victoria harbour looking fantastic. Cold day in hong kong, relatively speaking. Agreements. Tax cut taking place with republicans agreeing on how they should be implemented. We have to get the approval of congress to get this done. House prices in china. Also, bitcoin at 19,000 as another futures contract opens monday. A National Security speech, donald trump expected to call out china for in gauging in economic aggression, at least that is what ft is reporting. The u. S. And u. K. Give updates on Third Quarter numbers. It is the china open. Chinese stocks shaking off the doldrums apart from shenzhen, marginally lower. Shares in hong kong gaining ground after losing 1 friday. Says a strong start for chinese hshares could be around the corner after the Holiday Season and china is still under weighted by global funds. Focusing onnds banks, insurers, health care, and general consumption industries. Hshares up. 25 . China opening a key economic were conference monday. Raising by thee daily limit after tencent agreed to buy a 5 stake in the Supermarket Chain in a rare retail move by the tech giant. , chinaher early movers resources on the move, and nine dragon halting a drop. The last look at Noble Group Shares in singapore surging 25 , rebounding asvel, structuring talks continue, but the main focus is chinese and hong kong markets. Rishaad thank you. Lets get to new home prices in china. November new home prices rising in 50 cities month on month versus the same number in october. Cities in tier one particular with shanghai seeing existing home rises falling. 3 month on month and declines year on year and beijing november month,down. 5 month on new home prices in shenzhen the same, down. 2 currently. This is the story. We are seeing a decline in to your one cities in tier one cities. Price rises are chiefly confined two and three cities. To fiscal reform, changing gears, in the united states, first word news. President trump says he expects the economy to rock when Congress Passes the tax cuts. Thes plan this week with president hoping for his first major legislative victory. The bill was agreed behind closed doors and would slash the heporate tax rate to 21 and crosses the board tax cuts come a but then he them by 2026. Boris johnson has stepped back into the Brexit Debate, telling the sunday times he wants a deal that would give the government the power to reject eu laws. He said failure to do so would render the country a vassal state. On the other side of the channel , a chief eu negotiator confirmed brussels has no intention of offering the u. K. A more favorable deal than it has with anyone else. China looking for deeper financial links with britain post brexit with a britain and announcing 33 billion of support for u. K. Businesses to take part in chinas belt and road initiative. Other agreements include speeding up the londonshanghai stock connect, which allows investors in each country to trade shares on the others exchange. Japan exports grew for a 12 straight month as overseas shipments rose by more than expected 16 in november things to Strong Demand from the nations biggest trading partner china. Imports also rose 17 . The recovery in exports has kicked japan into higher gear, fueling record profits and Rising Capital spending, confidence among the large manufacturers also reach the highest level in a decade. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. News,d right, breaking chinas latest property prices. Shanghai, shenzhen, beijing seeing declines, all month on month, but youre on your mixed, but the trend is to the downside. 50 cities seeing month on month price rises taking place, suggesting it is not too hot, not too cold. Ill next guest is expecting chinas Real Estate Market to as more cityther governments tighten policy and diffuse bubbles. The senior economist at bnp paribas is here. We are seeing the result of policy tightening by various city governments in controlling the bubble pockets in various cities. We should expect more cooling down of the Property Market, which is what the authorities want. Ift we need to note is authorities are being encouraged and become over hawkish, there could be a risk going for the Property Market could have a bigger than expected correction. Rishaad is it really likely to happen . In theory it can happen, but ey are cautious foruse growth is important the xi jinping government, especially by 2020. It has to hit that target of doubling gdp from the 2010 level, so that is a hard target for this government to deliver, and that will make the government cautious on various tightening measures. What are the dangers for the chinese economy . Were talking about deleveraging and the effects of that, some saying it has not even started, others saying it is well and truly underway. I think you are in the middle there. In the chinese economy to the Property Market is similar to the deleveraging efforts. It is being done too much and could intentionally cause credit affectwhich could confidence and rates across the world. Whichs the policy risk beijing authorities are aware of. Also, there are potential risks that for some reason have picked up again like what we saw earlier in the year or last year. The point is the authorities will lift those controls when they see the system become more stabilized come as they have but it capitalme flows pick up again, then capital controls will come back, which is not good for investors. In conjunction with capital controls, capital flows if they picked up, there would be the risk of high Interest Rates, liquidity contraction, altering growth and asset prices in china. Rishaad one of the things we are watching out for is this upcoming economic work conference, gdp work targets etc. Policy,about monetary the impact of deleveraging. That will be addressed. To be clear that anything they decide in this work conference will not be announced with hard targets until next march when that National Peoples congress convenes, so what i suspect is that within this work conference, the authorities will decide on the growth range it wants to target and also in terms of Monetary Policy, hopefully we will get some clues and a clarification on selective tightening, the direction of the theneraging policy, and fiscal policy, i think we will likely get some information about that continuation of slightly expansionary fiscal policy to underscore the demand, the delivery of moderate growth Going Forward. Rishaad lets talk about markets. We have been seeing these interbank rates go up, and that is causing a ripple, isnt it . It is. The key word to watch out for in terms of the rates is volatility. The pboc does not want to keep too much liquidity in the system could convey a wrong signal to the market. When the deleveraging pressure is too high, that risks hurting growth. Something like a stopgo policy management style the pboc is employing, trying to hit the new policy goal sustaining growth and deleveraging at the same time. Rishaad what will be the big theme next year . There is still upward pressure on the renminbi. The ashare market could perform well in 2018 is the Macro Economic backdrop is conducive for good performance. Rishaad i a great 2018. Have a great 2018. Way, we will be talking to the Hong Kong Exchange and charles li on rival exchanges and more. That is on the way. This is bloomberg. Rishaad this is Bloomberg Markets asia. We are back. The latest business flash headlines. Surging in sydney after oracle agreed to buy the company for 1. 2 billion. Oracle will take 100 of aconex. The board recommended the deal, although subject to an independent report. Thebank warning a unit of trouble is having repaying debt, but the Aviation Unit is working to remedy the situation and has a healthy and stable debt structure as it seeks to ease investor concerns. Tencent stepping up its challenge to alley bomb up by entering the physical retail space for the first time and buying a stake in a supermarket million as a way to boost adoption of its Digital Payment service and follows alibabas decision to spend 2. 9 billion on a stake in a retail group last month. The Hong Kong Stock Exchange is listingsproposing dual class and aborting the loss of ipos. The biggestare what is going on . What is the dominant theme . This is the largest change in regime in the last 25 years since hshare. Since now we are welcoming markets and companies in the new economy, and theres a reason why they choose this particular governing structure. Want to the founders retain control while selling shares. Everybody wants control, but historically you control by investing capital. Now you control by your vision, your ability to come up with plans to drive the company. Ipo, theme they do founders have a small stake because the whole thing started with series financing. When not passing judgment on whether that is the right way and are giving markets a choice. Rishaad who are you hoping to attract in particular looking ahead . There are essentially three key elements. We are opening a new chapter for Biotech Companies. There are x have not yet been approved, so they dont have any revenue. Their products have not been approved, so they dont have any revenue. We already have a chapter 18, which is a mining company. There is no dispute there is fell you in there, but you will not be able to sell your sols, so would do have we do have a preprofit concept today. You are able to list without a profit. Biotech,w reform, there has been huge value created in that space and china is a Massive Health care market, so we want to make sure that we are open for business for companies that are in the middle of clinical trials, but not yet receiving approval to list. Rishaad that was one of the three. The second is Voting Rights and dual class shares. The third is for secondary listings from companies that are already listed in the u. S. Are u. K. Move to how this should improve your ipo pipeline. Next year that you will have doubled the number of people coming to the big board . We look at it broader than the ipo market. The ipo market next year will be transformative, fundamentally different from what we have seen before. Wet is great, but in the end are trying to connect the market. We are trying to connect our market, the global market, with chinas market. We are also connecting investors to our products. If we are able to introduce a new class of new Economy Companies, then our market will be fundamentally different. I think hong kong will be an explosive growth story for financial markets. People list, they need to be innovative . How do you define this . You have tot saying be at least new economy, technology, intellectual property, or whatever else, but that in and of itself is not enough. We will publish a guidance letter that is trying to figure out why you have to have this kind of governance structure. Is a necessary condition, but there are a lot of other factors we will be looking at. A lot of people talk about Investor Protections. This will be a balanced measure against this new economy at the same time maintaining sufficient traditional productions for the investor. There is confusion sometimes people make. We talk about two questions. One, how to protect majority investors against minority investors against abuses by majority investors. The second, how did investors acquire that controlling stake. By money historically, or this time by particular contracts, so Investor Protection never changes. Rishaad it will be key if you are to keep your reputation intact. Intactreputation will be of the Investor Protection measures in the system against the current family control business for example are all there. We are not changing anything. The only thing that of the inver Protection Measures in the system against has changed is that the familycontrolled companies acquire that control by money. These people control it by their original vision, by investors, willing to give them continued control to grow the company. We want to make sure those controls in this particular manner are kept. Rishaad you will have wider companies coming on board. You will be hiring more people to perform the Due Diligence necessary and not stretch the staff you have already . They are not different from any other company. As i said, the only difference this company has is the founder acquired control differently rather than we do business differently, rather than we handle diligence differently. Rishaad hold your thoughts. We have a lot more to talk about away from the dual class structures, which is what we concentrated on here, and move on to other subjects. You will be back with us in a couple of more minutes. Way. On the market check on the way. A day of rising equities, details in the pipeline. Rishaad this is Bloomberg Markets asia. We continue our discussion with charles li. You wereof years ago, squirming a little bit when we talked about the stock connect. It seems it has come of age. Is a bridge. Once built, you need to complete it. People need to have something to do on the other side of the bridge. So not only the infrastructure is there, now also there is a lot of stuff on the other side. Rishaad both sides . Yes. Initially, the north side stocks had not been available to anybody for a long time. That is why International Investors are going northbound. It has been very busy. One of the reasons this listing reform we just talked about in the dual class shares come about is to make those shares available to the southbound. Today those shares were still not available in china. Rishaad why is there this ashare premium over hshares . It will gradually disappear. Rishaad that is what we say every time. The issue is we dont allow riskfree arbitrage yet, shortselling into the market is still restricted. Unless you have that sort of system, so then it is all about buying and switching out rather than riskfree arbitrage were you buy one, sell the other one would then immediately get the difference. That is not happening because a lack of shorting into the ashare market. Rishaad will that change . But that market has issues, challenges, and its own logic, so right now it is becoming different choices for people. Rishaad lets look at the bond connect as well launched this year. Going veryalso healthy. 2014 . D much more than correct. The impact is immediate. The bond market is so much bigger globally. Denominator what we are seeing is not even the surface, so we still have a long way to go. At the end of the day, the bond market is different. It is not about trading. It is about risk management. Have outlined throughout this interview how you are growing organically. Are there plans to grow in organically with m a . We are not an acquisitive company, but to the extent we do acquire or expand that is the only transaction that makes sense for us. Are you happy with china . I am happy with china. There is clear connectivity, and it also fills the gap, which is commodities, but there is still a lot we can do to beef up the valuation an opening the warehouse is by getting more chinese trading. , yes youlast question know, gold connect in 2018 . We have london and hong kong come and at some point we may connect them, but early not 2018. Rishaad thank you so much. The chief it executive of the Hong Kong Exchange charles li. Next, the outlook for hong kong and china and an interview at the top of the hour. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Rishaad markets kicking off the penultimate trading week of the year, awaiting the capital berdych on tax cuts, house prices up in 50 out of 70 chinese cities, expecting more restrictions in the coming months. Scott morrison seeing the deficit narrowing in australia and expecting growth to slow slightly. I am Rishaad Salamat in hong kong. This is Bloomberg Markets asia. Ofhaad just a check thething different, silver, poorer sibling of gold. , 95 of goldtals exists, or mined still 95 of silver has been destroyed. This always doesnt quite deliver. Thats the general feeling. That is the current price of silver at the moment. We have Money Managers turning bearish for the First Time Since july. Could we see further weakness . It depends on what goal does come up because gold is the pace when people realize what silver is doing as well. Lets take a look at the market action. Lookingrm in the u. S. More than a definite, more than a maybe, more definite. Republican senator said they might act this bill. We have a busy week. That is helping the move the dow and equity markets in asia and japan. Trade figures showed exports helpingfor a 12 month, exporters in tokyo, while the yen steadying, the nikkei two a fourday drop. In shanghai, Consumer Staples leading the rise, but home prices fell in fewer cities. As a weredecline conference kicks off. Stocks kicking off a ozzie we have been keeping a close eye on the South African rand, losing. 3 . Amid then volatility anc leadership vote. Quite a bit this monday. Investors beginning to leg it for the christmas holidays. What are we looking at . There are quite a few equity movers across the region. We will kick off in china. Dailytock rising by the limit after tencent agreed to buy a 5 stake in the Supermarket Chain. One in sydney, you have jumping the most on record after oracle agreed to buy aconex. Noble group surging 25 as restructuring continues. Tire now on the up after declines. Flipping the board to show you the other side of the spectrum. One sliding this morning, and aurizon under pressure in sydney it has rejected a draft decision. Industryading the group lower amid a probe into links to potential allegations of antimonopoly violations related to the country project. Another stock rising the most since september 29 in hong kong. At se raised to buy cicc. In hong kong, hshare gaining. Strong start for hshares could be around the corner. Given that china is still notably under weighted by global funds. We do have materials leading gains with health care stocks, but Real Estate Companies and telcos under pressure, property players down on the hshare gauge. Rishaad thank you very much indeed. Lets turn to first word news headlines. Scott morrison has delivered his midyear budget outlook him saying he expects the deficit to narrow to 23. 6 billion ozzie dollars. Australian dollars. That compares with a shortfall and a budget forecast of 29. 4 alien. Growth projection down slightly to 3 in theng following two years. Pinera set to win the election in chile. Officials say he has 55 of the vote. Victory would be a relief to the Business World. Failure to take command and the first round lead to a market selloff. The vote for the president ial candidate for the African National congress has been delayed a second time with him us 10 of Party Delegates being excluded. There are only two people left in the price race. The rand hit a threemonth high ahead of the vote. The campaign has divided the anc , which has been in power since white majority rule ended in 1994. He expectsrump said the u. S. Economy to rock when Congress Passes the republican tax cuts. Boats are planned this week, with the president hoping for his first major legislative victory. The bill was agreed behind closed doors and will the Corporate Tax rate to 21 and across the board tax cuts for most individuals am a but then raised to them by 2026 but then it race them by 2026. Them by 2026. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Rishaad china wanting to macau to push for a diversified economy. Our next guest is a wellknown business figure who serves as a vice chairman for lan kwai fong, allan zeman. With 2017. Off how was 2017 for you and what were the standouts for hong kong and generally in this part of the world . 2017 turned out to be very good, especially hong kong and myself. Having the new chief executive takeover turn things around. The retail sales have been up eight months in a row. After being depressed the previous year, not very good here, but there seems to be a feelgood factor in hong kong. You have the political situation seem to settle a bit. I think things are straightening out. I think everybody is more optimistic today. Rishaad you picked retail. Retail was in the doldrums. There was a mistake that it was seen as cyclical rather than structural. The realization it was structural and it has been turned around, how . Basically there was a problem before. When people are nervous, they dont spend money. Rishaad you actually manage to annoy the people who do spend the money. Then you have the crackdown on corruption. Hong kong relates to china. It is part of the china Retail Business and revolves around china. During the corruption crackdown, no one was spending money. That slowed things down. Months,e last eight things have turned around. We can see that feelgood factor everywhere, including china, different place him a different world today. Rishaad what about different place, different world today. What about the opportunities and how you see them . China is key. The technology, they are ruling the world and technology. I say this many times. In the old days, people used to wake up in the morning, 1. 3 billion people, they want to go to taxi, lineup, bank lineup, but in todays World Technology has changed that. I was in shanghai three weeks ago and walked into a shop and had some renminbi with me and wanted to pay cash. They would not accept cash. A totally different world today. Liveslogy is changing the of all the mainlanders, everything they do revolves around technology. Chat has over 900 million users. Rishaad you have to use something. Growing up with cash as we all did rishaad suddenly the transition to mobile phones. Exactly. Rishaad it is the same principle. Exactly. China is leading the world because it has made peoples lives easier. That has been great for china. From today until wednesday we have the economic conference, working conference, taking place. I believe that from all indications that china Going Forward will be about high quality rather than just growth. Rishaad what worries you . You must have concerns. The biggest thing that worries me is the u. S. Rishaad i was talking about china. The u. S. , president , because now they are talking about a trade deal, china trade, the u. S. Coming down on china, and so it worries me that will cause a slowdown next year. China in the last three quarters, the gdp was 6. 9 , and they are looking to slow it down, probably 6. 5 Going Forward, which is fine. They want high quality growth and to get away from gdp growth and look at changing the equation. Rishaad quantitative and not qualitative and not connotative. Exactly. China is a market where i love investing. There is a lot of technology. Rishaad what are you investing in now . Something launched online. We are looking at digital media, games. We have a group doing games at the moment, online games, egames, and probably development centered around digital economy. Were doing a project in shenzhen, big one in shanghai, and it just presents you know, last year, 138 million chinese went abroad. When you travel, travel makes you smarter. The more you go and see things rishaad you have to be smart for travel you come back and it changes. Everything seems to be changing right now. Tastes are much more sophisticated. They are opening up, and so this takingn to all place, and china is leading the world. Ideal a lot with start up companies. E are launching a few funds were doing and israelchina tech fund, the flavor of the month the moment, so these are all things where everything is techrelated, smart cities, hong kong talking about being a smart city, just came out with an announcement. If you dont join the world in technology, you will be left behind and marginalized. Ishaad stick around with us loads more to discuss, including macau and the future of the territory in hong kong, and f grow next. Does lk allan zeman joins us after the break. Rishaad you are back with Bloomberg Markets. We continue our discussion with allan zeman, macau, and how its doing, ive horrible three years. Tell us about it. A horrible three years, tell us about it. Corruption, no one traveling, 9. 9 customers are mainland ,hina, and so that totally things were quiet for a long time. Suddenly macau has rebounded. It isody is saying because of beijings direction and it wants to get macau into nongaming and the government is pushing back, but in general macau is changing dramatically. There are new Hotels Opening up, palace hasing, wynn been good. It was tough in the beginning, but has now come back strong. Opening in 2019, so you have all these new Hotels Opening up and it is creating more diversity in macau. Rishaad its more of the same, just different hotels. Everybody is talking about nongaming revenue. Beijing is telling them they have to go into nongaming. It is about having a better mousetrap. Yes, gaming is gaming. The bodies are all the same. It is how do you dress them in clothing. There is a move towards nongaming, so what do you guys think about it . There is a move towards nongaming, having shows, probably las vegas bound. Vegas, 50 is nongaming revenue, and 50 is gaming. Rishaad do you ever see that split occurring in macau . I dont think they will get 5050, but you will probably get 257525, that kind of thing in a decade. The other thing, macau is changing as well because the connectivity to macau. End of this at the year that hong kong and macau will change. The most profound thing will be the bridge between hong kong and macau that will be finished at the end of this year, 25 minutes on the bridge. That is changing everything dramatically. Kong,highspeed rail hong between guangzhou to hong kong. To honges shenzhen kong. Everything changes. Connectivity brings more people, makes it easier, and macau becomes an important part. Also, the bay area, something beijing has been pushing and the Hong Kong Government it combines 11 cities, 66 million people. Its amazing. Million, macau. 5 million people, suddenly 66 million in Southern China connected my highspeed rails, connected by bridges, everything changes, so i look favorably on 2018. I think it will totally open up and cause a greater connectivity between all the cities around us, especially Southern China. Onhaad we had charles li talking about these dual class shares in hong kong. It is a great thing. I was talking to charles before. I think it is time. I was always against losing alibaba to the u. S. Stock exchange, and we can see where we wound up in ipos this year, very weak, and we need to wake up into the world of technology, including media and every company around. The disruption in every industry is huge. Rishaad do you think there is too much bureaucracy in hong kong in particular for new change to be embraced . Do you see how Artificial Intelligence in tech is being embraced . It does seem that hong kong is missing a trick. I agree. It comes from the previous years. With carrie lam, the new chief executive, i was with her last night actually, and she is very gung ho on technology and making hong kong a smart city. Rishaad theyre going to set up a committee. They have set up a committee. There are certain things. She is determined to make this happen. She knows that if we dont, we will be marginalized. The good thing about hong kong with shenzhen and technology, we can do things in hong kong that china cant do, someone why not set up research and development. Rishaad like what . Research and development, things restricted in china, media, things that we can do and hong kong, and Artificial Intelligence, when that would change everything. President xi jinping has talked about being the leader in the world of Artificial Intelligence by 2030, and i think they will get there before that. Rishaad are we already falling behind with ai . We have fallen behind. The Education System needs to change. It is the first time in my life where the kids no more than teachers in the school because they grew up with the internet and the teachers didnt, so we have to look at the education sector. Researcho look at our i and development in all industries, fintech as well. Li happy to see charles and hong kong strange have realized it. Rishaad im talking about the Administration Setting up committees, government by committee. Ey realize that unfortunate when youre in government and everywhere that it is set by committees because the people will the government. A leader whou have really believes in something, carrie lams two things are technology and creative industries. Those are the two think she is talking about for seeing hong kong into the future. I think that is something that is very important. It is what young people want. You have had people protesting because some people feel marginalized. Property prices are too high. That needs to be addressed. Rishaad it wasnt addressed in the budget, was it . It will be when you see the budget coming out, and that will be one of the priorities in that. Of vested lot interest. The problem is that in hong kong rishaad that would be how i would like to into the interview end the interview. Bringing it to where was and then hong kong for sure. Those vested interests need to be broken. I think carrie lam is the right person to do that. Many times, notches hong kong, but any city you have vested interests over the years and they have a big voice and it is difficult, but with carrie lam and the new administration, i feel they realize the problems and i think stepbystep that those vested interests will be broken, especially if you have the people behind you, which she does have. Rishaad allen, a pleasure. Always a fascinating chat with you. Allan zeman they are. We take a look at australia out with midyear budget outlook forecast, and narrow deficit, swelling corporate profits boost the tax take. Todays Data Confirms the budget projection of a return to balance and 2021 with the pace of consolidation maintained at. 6 . Despite the many challenges, that has budget maintain this return to balance and 2021. In 2021. Rishaad lets get more from garfield reynolds. He would say that, wouldnt he . Hi, rish. No, the government has done well with this budget. Rishaad yes. The dirty secret perhaps is that the most important thing they did with the budget was to at the forecast for iron ore 55 a time a ton. It has averaged higher than that, so that is an enormous boost to the bottom line. They acknowledged that. We have also had strong corporate profits. The downside is growth is still slower than the government would like slower than the rba would like, and they have had to downgrade their forecast for the current fiscal year. Wage growth is projected to stay slow, so it is a very gradual upturn. Australia for all the efforts of the rba and government remains in a misleading pendant on commodities, and enormously dependent on china. Rishaad this is just it. What happens next . Do you think they are dealing with the real challenges facing australia, which is essentially a bifurcated economy . Well, i mean it is a delicate balancing act. Over the last 10 years basically has been able to get a firm majority since the demise of kevin in the first time around, so that makes it hard to shift one way or the other. That has left of the government struck a neutral, so the good news from here is that there has not been a deterioration that would lead to a reduction in fiscal stimulus, and that will be welcomed by the rba. If all straight can maintain its current fiscal and Monetary Policy settings and see a continued pickup in Global Growth, then it might well get through to the sort of outcomes that would let Scott Morrison crow about the governments results. Rishaad garfield, always a pleasure. Garfield reynolds. You can look at our markets live withat mliv commentary and analysis from bloombergs expert editors so you can find out what is affecting your money. 10 29 in singapore. I am haslinda amin. The Hong Kong Stock Exchange stepping up efforts on ipos after it lost out on alibaba. Innovativeow companies to list with a dual class structures, the biggest change since 1993, and charles significant number of companys which is hong kong in the coming year. Hopes a significant number of companies will choose hong kong in the coming year. Our market will be fundamentally different if they choose us. With the new economy, i think hong kong will be an explosive growth story. Americas biggest Foreign Investors are buying more treasuries. Rose 8. 4ldings billion in october 2 1. 2 trillion. Is rebuilding currency reserves amid tighter capital controls. Holdings by number two investor japan fell for the Third Straight month. It accounts for more than a third of ownership treasuries between the two countries. A man has charged with being an agent for north korea in australia. The 59yearold is accused of attempting to broker millions of dollars worth of sales of components that could be used in ballistic missile. He allegedly used encrypted communication to discuss the supply of weapons and in aibution contravention of law and sanctions. Rahul gandhi takes power at congress. The next general election is due in 2019. Prime minister modi has vowed to obliterate congress with the help of hindu nationalist forces. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Rishaad investors have another new way of trading Bitcoin Futures as the worlds Biggest Exchange is flipping the switch on derivatives a couple of hours ago. Justina lee is here. Big move here. We have already had a week of Bitcoin Futures trading on the cboe, but cme is the worlds Biggest Exchange, said this is a milestone in terms of mainstream acceptance. You have to remember the fact that a lot of Institutional Investors might be too nervous to trade on these unregulated bitcoin exchanges. We are down a bit actually. Down 3. 2 on the contract. Sorry. Right, exactly. For a lot of Mainstream Investors hoping to get in on that price action, this will be an easier way to do so. Rishaad is there anything different about the way the cme does this . , it represents five bitcoins, whereas the cboe represents one coins and is basing pricing off one exchange, the gemini exchange, whereas the cme is based off of four exchanges. You will have volatility halts that help to assuage the concerns of investors that the price wings are too wild. Rishaad how is the trading going generally . It seems a little bit less futureshan when cboe started trading. 18,900,utures around a tiny premium over the price of bitcoin. A week ago, cboe futures trading saw the volatility halt triggered two times within a day, and you had this massive premium in the futures over the actual cryptocurrency, whereas today it seems muted. Bitcoins price surged over the weekend to approach 20,000, but has come down a little bit now. Rishaad thank you very much indeed. That will get us to the other markets away from bitcoin. Lets look at the session thus far. We do have this risk on mood percolating through asian markets. You have the yen softer for a second day, and gold under pressure given what we have seen with the dollars move amid this optimism around u. S. Tax passage. Base metals are steady after the best weekly gain since february. I want to highlight the bond space, chinese lawns climbing for a fourth session as the pboc raise the 14day reverse repo rate to 2. 65 from 2. 6 . Keep in mind that the central theash injection ger term borrowing costs in the equity space, japanese shares up higher 1. 2 against the risk off mood. Equities in focus. One rising by the daily limit after tencent agreed to buy a 5 stake. 9. 3 , theorld falling fifth the day of losses and home prices fell in fewer cities. Shares of Hong Kong Exchange itpping a to date drop as approves dual class share structures and is the best performer today. Costs, chinas rising borrowing costs, also bond traders nervous. Calmed shortterm , but longerterm a bleaker picture. Take a look at this chart on the bloomberg terminal. The threemonth interbank rate has cap climbing, widening its premium over the one week in blue to the most since 2015. Lets have a look at this and our assets editor emma obrien. Why is this unsettling for fixed income traders . The cost of borrowing between thanks on the shorter term oneweek is really calm, but on the longer in of the sh ibor has spiked and we have that gap. This indicates people are comfortable with the environment funding, but expect things to get harry down the track. Down the track. Rishaad what about after that rate hike . People see that as a prudent move. It was only five basis points compared to what the fed did, so they were keeping track with the fed and really dont want that yield differential him at the rates differential, between china and the u. S. To get to wide that it becomes something that puts pressure on the yuan, which they are trying to keep stable, but they want to keep their hand on the tiller in terms of the Deleveraging Campaign going on at the moment. Marketas a signal to the that we still have our eye on the prize in terms of deleveraging. What signals can be interpreted from the Chinese Central Bank with the kind of effect over all with this the year endave on tax payments i suppose . I think that might be one of the things working people and why we are seeing this bike in the longer term borrowing rates. The tax payment burden that comes towards the end of the year obviously increases the cost of funding because there is more demand from banks and thatnies for cash, so would be another reason of why it we might see shorterterm rates pick up as we get towards the end of the calendar year and we start to see liquidity pressures that are ever present in china, but have been calm lately return. Rishaad thank you so much for that. Emma obrien having a look at the problems of bond trading and liquidity in the system in china. On the way, yes to the yen. We ask a deep blue Global Investor why the currency has rooms to appreciate. Real yield is on the way next. This is bloomberg. Rishaad 10 year treasury yields traded in the narrow wrist range since 1965 as this reflation triggered by President Trumps gain. On continued to lets find out what all that means in todays real yield segment. Tell me about this. Come on. Is a very hard problem for global Central Banks because they are working on a fine line to keep the balance. They dont want to hike too fast to dampen the Global Expansion because the u. S. Unemployment rate is at a saturated level already. They dont want to keep the Monetary Policy to accommodative to create too much excess in the real economy, so my ace Case Scenario is that Central Banks will keep a fine biased towards printing more money to keep Monetary Policy accommodative next year. That is the risk, but that is not my base Case Scenario. Have to look at possible policy mistakes by the chinese government. They are trying to clamp down on the over leverage in the financial system. Once you drain the liquidity from the system, it is hard to make the direction accurate week is the liquidity will find the easiest way to get out from the system. That will put downward pressure on the stock market and the new economy. Rishaad lets look at japan. You could argue it is the most accommodative Monetary Policy. Lg capital was on an hour and a half ago lgt capital was on an hour and a half ago and he got it was too tight and wants to have the short in brought down so we can steepen the yield curve more. What are your thoughts about putting it further into negative terrain . You mean japan, right . , they are still far away from their target inflation rate of 2 . Governor kuroda mention this several times, saying they would keep printing money at the current pace. However, if you look at the yield, youb real need to take into consideration the cross currency basis. Not everyone understands that cross currency basis. Reformelated to the tax in the u. S. The tax reform aims to repatriate the overseas capital. That will allow a tighter overseas u. S. Dollar market, and that will increase the basis in japan or in europe, and that will make japanese and European Assets higheryielding currency than the u. S. Currency, u. S. Assets. Rishaad is that the basis of why you believe the yen will appreciate . Will it . The boj will try to make sure it doesnt. That is a technical reason why the japanese will appreciate further. From a fundamental point of view that the japanese yen is trading at a very, very cheap real fx rate. Before the product saw in 1987, so it is one of the most undervalued currencies right now. Rishaad 75 comes 76, 77 at one stage 75, 76, 77 at one stage . That was before the agreement. Rishaad before abenomics. Fair thanunds more the current level. I think it has room to appreciate. Rishaad where is the juice if you look everywhere . Were talking about real yield. Where do you go for that . It doesnt necessarily have to be fixed income. , yields. Be dividends the top take is the emerging market and local currency assets, including local currency bonds. For the emergingmarket dollar aroundhey are trading the upper bounds of the fair valuation, but for the local currency bonds for many emergingmarket countries, they are going through profound reform to bring down the structural inflation in order to lower the funding costs for those countries. Argentina, brazil, russia, and indonesia. Rishaad two out of three countries have defaulted on their bonds before. That is the history. They have redeemed already. The current regime rishaad in argentina . Argentina and brazil. Rishaad lets also look at the local currency bonds when they are issued. The dollar. Bet on how do you hedge yourself with that . If i am bullish on those currencies, i am bullish on it openonomies, i keep for fx, and i believe the u. S. Dollar will continue to weaken against either emergingmarket currencies or the other developed market currencies like the japanese yen and euro. Off,. S. Economy is peaking to the peak of the cycle in terms of growth rate. Rishaad with rate hikes next year, they are priced in, are they not . At least 23 . Right, but the market is trying to price in more monetary tightening by the ecb and jgb Going Forward. , youe end, the fx rates have to look at the irr of the underlying currencies and economies. The least attractive currency right now is the u. S. Dollar. Youre looking at emerging markets, anyone you would like to single out . For emerging markets . Rishaad yes. Brazil, russia, argentina. Rishaad you mention those. Were looking at sovereign, not miss early corporate. Just to focus on the quality of the corporates. Rishaad thank you for joining us. To highlight want for you is our interactive tv function called tv. Look atwatch us live or previous interviews we conducted and dive into securities we have mentioned and looked at the functions that we talked about. And look at the functions we talk about. You can become part of the conversations and send us instant messages during the programming. This is for bloomberg subscribers only. Check it out at tv. , the latest business flash headlines. Hnac warning a unit of group having trouble repaying debt but is working to resolve the situation. The news comes after the hna director says the group has a healthy and stable debt structure as it seeks to ease investor concerns. Citic lowered the rating by one level pointing to rising financing costs. Oracle has agreed to buy a company for 1. 2 billion and take 100 ofaconex. The board unanimously recommended the deal, though it is subject to an independent report. Delta Airlines Says it is being forced to cancel 300 flights in atlanta after a major power outage. The tower canys operate normally, but other equipment is not working. Beingd flights are directed elsewhere and delta says it expects widespread disruption for the foreseeable future. , one of the worlds biggest Asset Managers is betting on china to be one of the top growth areas. That is next. This is bloomberg. The ninth chinau. K. Financial dialogue wrapped up this weekend with some reward for british Financial Services. Figure in the u. K. Delegation spoke exclusively to bloomberg and explain how western Asset Management with china will drive growth for the next decade. Last week we were given approval to actually start operating our Asset Management business in china. We have the holy foreign owned enterprise license the year ago. We have permission to start business, and that business will be manufacturing and selling Investment Products in china. This is a big first for us and is an important development. Two years ago, they welcomed an. Pplication from us that is a complex process. It is complicated by the fact rc regulator has no chairman at the moment, and the organization of these things in china takes times. For theh prospects Asset Management side of the business, are you adding headcount next year . Yes we will. The Growth Prospects of derived from chinese portfolios massively undersurface of fight massively undiversified. That includes overseas assets. The direction of travel is that is opening up. Into Asset Management china and out of china being one of the great growth there is in Financial Services for the west over the next 10 years. On the Life Insurance side of the business, have you had discussions with your jv partners and are they willing to give you full control of that this is at some point . Partner isg a strong part of building a successful business in china and emerging markets. It would be a great person to do it by yourself. If you get along well with your partner as we do with ours, and some would say it is characterized by some of the best relationships in china, do i want to take control of this isnt necessarily compatible with the Partnership Spirit of a joint venture, so it is there for the future if we needed, but our strategy does not depend on getting control of that business at some point in the future. Havee you interested, do an appetite for chinese bonds question mark bonds . Our emergingmarket bond fund is one of the largest. , the stockat idea connect and bond connect programs. Im sure they will come eventually. Im sure the chinese will be very cautious in the speed of development of them. I think we will see a number of baby steps. Think it is good Standard Life aberdeens chairman speaking exclusively with tom mackenzie. Ofing up next, the head multiasset solutions will be joining us to discuss the latest Market Strategy on a day that we do have equities on the rate the way up across the pacific. Up two thirds of 1 . Cannot live without it. So if you cant live without it. Why arent you using this guy . It makes your wifi awesomely fast. No. Still nope. Now were talking it gets you wifi here, here, and here. It even lets you take a time out. No no yes yes, indeed. Amazing speed, coverage and control. All with an xfi gateway. Find your awesome, and change the way you wifi. Kong. Im david ingles and we are in the middle of ultimate trading week. Welcome to Bloomberg Markets asia. And markets are steadily on the way up. There is some concern about rate hikes with the pboc moving again. The hong kong moves to ensure alibaba does not slip through its figures. Glass halffull or empty . Of course, we are trying to stay positive. We are getting underway, of course, its monday, the first trading day of the week. We are talking about the week working up to the final trading week, where you have a lot of the markets up and running. Next week will be very quiet. We are up, barely for asisa. Slightly higher when you look at the global benchmark. It does seem it way through the next few days or so. Take a look at this chart. We are looking at very encouraging export data. We are tying this together with china. A lot of this comes back to this reflation story over the chinese mainland. They have been importing more. As you can see, thats really lifted a lot of the demand for shipments through singapore. Japan, of course, what you see t here. Lets zoom in. We are looking at reflation when it relates to exports. Thats one thing to watch as we sort of make our way into the rest of this year, two weeks to go. We have a few more bits and pieces of data coming through. Yeah, a lot to talk about. Hopefully, of course, we do manage to hold onto these gains. We might never yet against the another year like 2017. That is the market story. Lets get over to o has linda. Reporter Scott Morrison has delivered midyear budget outlook, saying he expects the deficit to narrow to 23. 6 billion on the year. That compares with economist estimates of a 25. 7 billion shortfall and with the may budget forecast of 29. 4 billion growth projection is down slightly to 2. 5 , rising to 3 . Americas biggest Foreign Investors are buying more treasuries. Chinas holdings of u. S. Debt dollars. Billion beijing is building its currency reserves of capital control, holdings by number two japan fell. That accounts for more than 1 3 of all Foreign Ownership on treasuries. China is looking for cheaper financial links to the u. K. Post brexit. Trade calls with beijing and britain announced 33 billion worth of support for u. K. Business is taking part in the belgian road initiative. Other agreements include speeding up the londonshanghai stock connect, which allows investors to be able to trade shares on the others exchange. , secretary Boris Johnson has stepped back into the Brexit Debate telling the sunday times he wants a deal that would give the government the power to reject eu law. He says that failure to do so would render the country in a ba d state. Michel barnier confirmed that brussels has no intention of offering the u. K. A more favorable deal than it has with anyone else. Spacex has completed its second supply trip to the space station two years after its first. The dragon capsule was launched from Cape Canaveral on friday. It is the first time spacex has used a recycled rocket to carry a recycled capsule. The company is trying to drive down launch costs by using as much agreement as it can again. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. This is bloomberg. Thank you so much. Lets get a check of the equity markets right now, as we count down to santa coming along in a few days, and the birth of jesus christ. A very good note this morning. Absolutely. Forcicc, the spunkishness shares are continuing, gaining ground as the hang seng is up. 4 . Chinese stocks also gaining ground, up. 2 . We have ciccs saying china is still overweight. There could be an impetus to move inflows into chinese mainland markets following the Holiday Season. We are looking at the hong kong area right now with financial leading gains. Telcos not as bright a spot this morning. The Property Developers perhaps, under pressure, given the chinese home price data we got out this morning. I want to point out what else cicc has to say when it comes to the hshares space. They are recommending a focus particularly on bansks, insurance and health care. A positive utilization of urbanization. David they were also talking about, something about them preferring, when they were looking for preferences and oil and gas. Sophie they see that turnaround for oil and gas. That could come from the robust oil prices we are seeing of later. Those shares are on the rise because that stock was raised to buy from hold. Investors are underestimating the companys earning potential, in the business line is up. So, cicc has lifted the price a 48 premium to fridays quote. I want to point attention to another equity mover in hong kong on the mainland. This, after tencent agreed to buy part of the Supermarket Chain. Tencent is also getting a boost. It is on a shopping spree day. Online retails. It is perfect for christmas shopping. David it certainly is. You know what else is ready . This morning, the pboc sneaking in a rate tightening move. Lets get my chart up, please. So, last week of course, the fed moved. The pboc then moved to move their 28 day. This day they moved on the 14 day. It is on the pboc website. Five basis points in the upset, and of course, building this chart. Sophie we are seeing that is the case. Chinese bonds, they are looking more optimistic, at least given the jitters we have had. The 10 year yield is creeping back below 10. 39 . And the policy bank for china is now also back below 4. 8 . So, overall, it looks like the central bank is signaling that yes, tightening will likely continue. And we have Credit Agricole saying the leveraging campaign could drive Interest Rates higher by at least 10 points. David sophie, thank you. Lets have a look at 2018. The political turbulence could mean risk on as the year draws to a close. The rand, for example, could not get any more volatile. There is a Bitter Campaign to succeed president zuma. At the chilean sector. The former, slipped back into office. Chris, we will start with chile. What does this victory mean for the em trade . Chris good morning. It looks like there has been a resounding victory for mr. Pineda, a business rented the candidate, a billionaire that previously ran the country. A platform that includes tax cuts. He is seen as being the candidate that will help boost economic growth. And indeed, we could see the chilean peso rise in the stock market there rise when they open on monday. Theyve been rallying recently on optimism that the candidate pinera would win. However, i was just taking a look, david, at the chilean peso this year. What you will notice on the bloomberg is that it has a very close correlation with the price of copper. So, its not clear to me that the political scene here will be the dominant factor for chilean markets. The copper price, copper makes up a dominant share of chilean exports, has been doing very well this year with steady growth in china. So, really, looking at the outlook for 2018. It might be more useful to look at chinese growth forecasts, and projections for the chinese Construction Industry and therefore, its needs for copper and the business friendly candidate. You could say a potential headwind for chilean markets has been removed by the win by mr. Pinera in the president ial election over the weekend. David so, that is roughly over. But when i look at for example, south africa with the anc set to elect the successor to president zuma. And looking at the overnight implied volatility on the brand. It is jumping the most since the crisis. What are investors looking for in that vote that takes place. Chris certainly relevant to chile, the political situation in south africa is a big issue for investors and as you say, the volatility in the South African rand and the stock has really been closely tied to the political situation. So, we have got a very close race here and most experts really are not sure how this leadership election is going to pan out for the ruling anc. So, theyve got again, a perceived business friendly candidate in the form of cyril ramaphosa, one of the luminaries of the antiapartheid battles back from the 1980s. He has been a prominent investor. Hes been a prominent businessman in recent years an hes seen as the steadier hand at the helm of state, if he wins. The other candidate, former spouse of the outgoing president , jacob zuma, has been associated with some of the corruption scandals that have tainted president zumas administration. As,she is not regarded beingb as business friendly regarded as being as business friendly, somebody looking towards policies that focus on distribution of wealth, rather than creation of wealth. So, shes very much seen as not necessarily business friendly. So, just even this morning the rand has been rising 1. 5 , down 1. 5 . Its going to be a wild ride, regardless of which way this leaaderdership election p pans o ut. You so much. Thank looking ahead, new questions about debt elimination. The company that will not be defaulting on its debt. Stocks and bonds looking expensive into 2018. We look at the price outlook for next year. Thats next. This is bloomberg. David this is Bloomberg Markets asia and im david ingles. Its been an extraordinary year for global markets. What will 2018 bring . Lets bring in our next guest. So, your are cautious for 2018. Tell us why. Anas you said, its been exceptional year. Volatility is at a record low level. We have acceleration at a being more of a driver. With that we have an optimistic vision from the market perspective on earnings. Which we see in the u. S. In particular. So, we are favorable on the earnings forecast in japan and europe. David before we move on to specifics, it is 2017. He will not get a repeat of the almost nearperfect conditions. And we do have a chart to show our viewers here. It is on the bloomberg. Overall, there are reports for a 20 rise. The 30 year average is about 7 , in terms of the mean for equities. Where do you think this goes next year overall . Are we still within doubledigit growth in equities . Thomas no, there is singledigit growth. Given the momentum we have in the economy. Having said that, with pmi at a record high level, it is also quite a bearish signal in the sense that it tends to revert. We are still well above 50, which is the extension note. So, its economic and we are still expanding. We are not calling for a recession at any time soon. But we are seeing that expectations are very high, priced in with the valuation. We need to see places where earnings can come through and earnings will come through at singledigit levels, not doubledigit levels. David one of those places is japan. Every Single Person who has come on this show likes japan. Terthere a reason not to en japan . Thomas i guess the yen is something to be concerned about if we see a very think of in strengthening of the yen. That could bode badly for the export sectors, but we are not seeing that within our forecasts. Japan is one of the few places where stagnation has not expanded, compared to the other markets. That is why you see japan isf the this double beneficial one is earnings in the second is valuations within the equity market. Guy you are also advocating switching exposure to fixed income. Do we not yet returned to that traditional relationship . Why do you want to increase your exposure to bonds . It already looks expensive. Thomas we are not extremely bullish on bonds. We want to have diversification within the portfolio. That when equi lowerarkets have profile, it can be impactful on the bonds. Having a diversifier in the terms of Investment Grade credit is something we could see a more benefits to the total risk. David within the bonds space, emerging market bonds, you have singled out india. Although inflation has picked up and there have been other acute reasons why yields have been picking up. Do those things make you change your mind . Or do you still like indian bonds . Thomas we still i places with an emerging markets. These are quite longtermt trends. Of course, inflation has room to pick up, due to exit generic factors. What we see in places like india, indonesia, argentina, places within the emerging markets, where we are positive on equity, as well as in bonds. David if inflation does pick up there is very little indication right now they will come up in a meaningful way that you say real assets tend to do well. Can you remind us what those companies are . It has been a while since inflation has improved our portfolios. Thomas we are talking about longterm trends in real assets, which applied to Natural Resource stocks. This would be the one that would do well when inflation is really accelerating above average. We are not in that environment yet. That explains why we are still cautious in these sectors. We dont see inflation moving above average in the developed world. David back to equities here. Health care is one of your picks in terms of one of the sectors you want to have exposure to. I am guessing a lot of people will be talking about health are as a fountain of ther r d next year. Thomas its a difficult asset to be too narrow. For health care, as well as for tech, these are the companies that are expecting to grow their earnings within the next year. Going back to our vision for next year, it would be earnings that drive the total return of equity. So, health care, tech, the companies that are already innovating and driving Earnings Growth would be the beneficiary of the environment. David very quickly, active or passive management next year . Thomas i think active will make a comeback in the sense that we see yields moving slightly higher. We see a correlation between stocks being at low levels. This is a Good Environment for active investment. Coming up on the program here, if you are a pessimist, here is your guy for the next 10 years. We look at the different scenarios that could actually shape your future. This is bloomberg. David this is Bloomberg Markets asia and im david ingles. The world is on edge. North korea is starting a war and nobody knows what President Trump will be doing next. There are other forces of destruction, speaking of cryptocurrency. With all that in mind, we have the latest addition for the pessimists guide for the next decade. Not just the potential shocks for the next year, but how they could shape the next 10 years. With the scenarios, i have to say, some extreme. That is the idea, really. It is more of a thought exercise. They are not really predictions. They are out there scenarios that really get people thinking about how much the world is changing and how it could change over the next decade. David just to go through some of these scenarios, i believe we have a little graphic on the terminal and on bloomberg. So, trump wins the second term, facebook kills news. What would you say along these 10, what is the most probable . Probablehe most fashion line related daniel the most probable it is really making the point that Climate Change could be a new geopolitical issue. Where chinas vulnerablities will change and open up some avenue for a trade war with the u. S. David that is scenario seven on the list. Scenario four, north korea launching an attack. Daniel it is more north korea firing a missile that lands 20 kilometers off the coast of donaldnia, which spurs trump to reach out to china. In this scenario, actually, the u. S. And china come up with a itgain where it shows might not lead to the outcome you might expect. You might see the u. S. And china coming together to find a solution, rather than nuclear war breaking out. David and the number one scenario here, donald trump winning a second term. How likely is that going to happen . Daniel that is still early days. It hinges on the economy booming, donald trump getting cleared in the Robert Mueller investigation, and the republicans fighting amongst each other. Rightr now, his approval ratins are in the 30 s. David thank you for coming on the program. Now, lets shorten the view and have a look at the reopened in a few minutes. Trade numbers are out, very good. That is next. This is Bloomberg Markets asia. This morning we did get the latest contracts in bitcoin. Have a look at my bloomberg chart. Andjanuary contract on cme cboe and our bloomberg spot index. The other thing i want to mention is this convergence in prices, this arbitrage opportunity. As you can see, a very narrow trading range. To 19,000 on Bitcoin Futures. Thisnother price check monday, lets get over to sophie. Sophie misery monday for the gmm, risk on. The yen flat, gold under pressure, but theys metals doing well. Base metals doing well. On the way up and providing support for the aussie dollar. We also have the Midyear Economic outlook from australia, although Scott Morrison says there was not much upside risks to the growth forecast. 1. 2 . Se shares up exporters leading the way in tokyo given a slightly weaker yen, but the mood sour in malaysia and singapore trading as the index down. 3 . For the singaporean dollar, trading flat. In shanghai, losses, i. T. And industrials and industrials dragging, telcos weighing heavily, falling 1 . Consumer staples higher led by several companies. As one analyst points out, the jury is divided on whether the Consumer Staples sector will continue to outperform. We are keeping and i on and so ease as they may benefit from tax cuts on Environmental Protection from authorities. Eskeeping and eye on so as they may benefit from tax cuts on Environmental Protection from authorities. Tech stocks not feeling the love in hong kong. Optical set for a fifth day of losses. That is the most expensive stock on the hang seng. Sophie along with geely. David thank you so much. Ats get you an update and wrapup of exports out of japan and first word news. Grew for 12xports straight months in november and shipments rose by more than to strong16 , thanks demand from china them a wild rose 17 . Profits andd record profits reached the highest level in a decade. A set to win the president ial election in chile. Theas 55 of the vote and narrow victory would be a relief for the Business World after years of radical reforms. Ras failure to take command in the first round lead to a markets a lot. Withelayed a second time almost 10 of Party Delegates being excluded from the anc conference. There are only two people left in the race. The rand hit a three month high ahead of the vote. The anc has been in power since white majority rule ended in 1994. President trump says he expects the u. S. Economy to rock when Congress Passes the republican tax cuts. With are planned this week the president hoping for his first major legislative victory. The bill was agreed behind closed doors and would slash the Corporate Tax rate to 21 and tax cuts for most individuals am a but then he race them by 2026. Individuals, but then you erase them yo by 2026. Putin thanks trump for terror tipoff. Seven people have been arrested come all claiming to be followers of islamic state. The latest member of the gandhi family to take control of the party after taking the reins from his mother with the party losing support. Sonia gandhi described her son as a new hope. The next general election is due in 2019. Vowed toister modi has obliterate congress with the help of hindu nationalist forces. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. David a week after it said it would not default, citic has warned that the unit is having difficultly repaying debt. Here is a reporter to tell us more about this citic statement. Over the weekend citic saying is havingt of hna difficulty repaying shortterm debt. At emperor liquidity issue, but is caused by the loans maturing around the same time. The bank is working with the company on the issue, but such there isow that pressure financially to the company after multiple acquisitions. David a lot of these units are interconnected, and given how tightly these interconnections leveragedssively these units are, it is not surprising we will get this news every now and then that one might fall. Help us understand what other signs have triggered these concerns . A couple of things over the last couple of weeks. First, the Ratings Agency profileed the credit and an overseas unit is facing the risk of a downgrade as well. Saidof the reports have they are missing payments. Third, that they have canceled some of the bond issuance. Triggeredegative news market concerns, and then the bond price reaching a record low last week. David it has been tricky for them. You have some of the units coming to Market Selling that at high yields. Has the company come out with a statement, or have they come out and try to alleviate some concerns . They did. They tried to clear the negative news. Did anoard members interview to say they dont really have default issues in the coming year and that structure is healthy. Their Senior Executive used their own money to buy the , so it reflects the confidence in the company or unit. Thatlast week, they said they will continue to chase bonds if the price drop significantly. E to get back the confidence. David it is like a put in the bonds here. How much debt is coming due for the entire group next year . Do we have a number . From the interim report, we huge. Hortterm that it is in one year, i dont have the number in mind, but it is a massive number. They really need to come up with some solutions or way. Liquidityt is when becomes a solvency issue. Hopefully we dont get there. Thank you for that. Lets stay in hong kong, the Stock Exchange trying to lure tech giants after it lost out on all obama. It is proposing listing dual class structures, the biggest change since 1993. The Hong Kong Exchange ceo was here earlier and told us he hopes a significant number of companies will choose hong kong in the coming year. Largest change in Listing Regime in the last 25 years since hshare. They want to make sure that we are welcoming markets for companies in the new economy. A reason why many new Economy Companies choose this government structure. They want the founders to retain control. Everybody wants control, but historically you control by investing capital. Your visionrol by and your ability to come up with plans to drive the company. A lot of the founders by the time they do an ipo have diluted down to a small stake because there has been a series of rounds of financing. When not saying it is the right way, we are sent to given the market a choice. Giving the market a choice. Who are you looking to attract . Three key elements. One, new chapter four Biotech Companies. Their products have not been improved so they dont have revenue. Thats it. Some people are saying you are selling out because you are ending this profit requirement for a new ipo. We already have a chapter 18, which is a mining company. There is no dispute there is foul you in there, but unless you are one of the larger players, you cant sell your minerals. So we have the preprofit concept today in the mainboard today. You can list without a profit as long as you are big enough. In this new reform Biotech Companies a huge value has been created in that space, and Massive Health care market in china, so we want to make sure we are open for business for companies that are in the middle of clinical trials, but yet not receiving approval, to be able to list. That was one of the three. The second is Voting Rights and dual class shares. The third is for secondary listings from countries already listed in the u. S. Or u. K. How this should improve your ipo pipeline. Do expect this Time Next Year to be saying i have doubled the number of people coming to the big board . We look at it broader than the ip a market. The ipo market next your will be transformative, fundamentally different from what we have seen before. That is great. In the end, we are trying to connect the market, our market, the global market, with chinas market. We are also connecting chinas investors to global product. If we are able to introduce a complete new class of new Economy Companies, then our market will be fundamentally different. The money coming from the north, the southbound connect, and with the new economy, hong kong will be an explosive growth story for financial markets. When people want to list they have to be innovative . So how do you define this. . In a nutshell, you have to be at least new economy, meaning technology, intellectual property, or whatever itself, but that is not enough. We will publish a guidance letter that will try to figure out why you particularly have to have this kind of governance structure. A new economy as a definition is a necessary condition, but there are other factors we will be looking at. David that was the ceo of the Hong Kong Exchange charles li. Are a bloomberg subscriber, check out some of the other interviews you may have missed today. That interactive function is tv. You can watch and become part of the conversation and send us instant messages during our live show. This is for bloomberg subscribers only. Check it out at tv. This is Bloomberg Markets asia. This is bloomberg. This is bloomberg. David this is Bloomberg Markets asia. David this is Bloomberg Markets asia. Lets have a look at Southeast Asia. Next year, 2018, strong momentum. Have a look at my bloomberg chart 2289. We have put together the msci Southeast Asian benchmark. We have tracked the forward pe on that one against historically itself with variations in between, and also the nikkei 225. Is ify takeaway from this you understand why people like japan more than Southeast Asia because it is more expensive, but if growth does come through, it might be palatable with the philippines and vietnam expected to be star performers when it comes to economic growth. Lets get it over to our reporter joining us live. The u. S. Trade war has not has not u. S. Trade war happened. What is the outlook for next year generally . It is very good next year. We did not have to worry about what we thought would be a jolt to this regions economy. Global trade surprise to the upside. What economists are looking for next year is sustaining momentum in trade. We might not see the boom and electronics, but should keep up the pace and help keep growth on par with the regions economies. We are expecting that growth evening out to other sectors. We have seen that in some signs that the Housing Market is recovering in singapore. As we lookok out for to a cheery 2018 for Southeast Asia. David you have singled out the philippines and vietnam, but where might we see higher Interest Rates within the region . May be all over. The philippines and malaysia are most likely to raise Interest Rates according to our data. Philippines, there are concerns about overheating. There are lots of infrastructure packages, ambitious spending. They just cut taxes and raise them for others for industries such as coal. A lot of activity in the philippines. Side,m on the growth every time i talked to businesses, they are excited about what is going on there, Development Opportunities and reforms that will increase the ease of doing business. And a lot ofng reasons to be optimistic for 2018. David what might derail this rosy outlook . Help us to draw the line on fear here. There are always risks here. U. S. China remains a risk, not so much the probability, but the fact it would rock to this region and Global Supply chains in this region. An eye on north korea, which is less predictable, but could jolt the economys. Economies. We have been waiting for Corporate Investment and wages to pick up since the Global Financial crisis. Those have been priced in for next year, so if they dont perform to expectations, we could see slower consumption and other parts of the economy not panning out as of forecast have so far. David lets hope it does not happen. We will see what happens. Michelle, thank you so much. Life out of singapore. Have a look at this. Massive, massive declines in india. Gmm function highlights this for you. You can see substantial weakness,. 9 downside. Are therlying story Election Results are coming in closer than what people were expecting. We will track this for you can get the latest development. At the open, equities in India Falling most, and the currency weakening the most since may of this year. , one of the worlds biggest Asset Managers says brexit makes the u. K. Less of a partner. Our interview is next. This is bloomberg. Ninth chinau. K. Economic and financial dialogue wrapping up in beijing with some reward for britains Financial Services sector. Does brexit play into all of this . We spoke to Standard Life aberdeen chairman gerry grimstone. I think it has made britain less certain as a partner. Everybody is hoping it will turn out where well, but nobody is means, so what well there is a lot of weight and see. A competitive, global economy, people dont wait to see if certain Investment Opportunities come up. We dont know the extent to which we are still the gateway to europe. We very much hope we are going to remain the gateway to europe, but that remains to be seen, the exact configuration of that. Where do you think the market will take us in 2018 . The market remains positive come up but this has been the least popular of all markets ever. You look at the way this market has run in recent years and you would think that people would be jumping for joy, but actually turnovers have been subdued, so it is a strange situation driven partly by liquidity. To massivesed liquidity being provided by Central Banks that people are not quite sure what it will be like when normalcy comes in, but so far, so good. I am optimistic about china and india. China is 6 , 7 growth, a great driving engine. U. K. Brexit hard to predict. Europe doing well, u. S. Doing well. You think equities have room to run next year . Rationally i would say no, but in practice probably yes. That was the chairman of Standard Life aberdeen speaking with tom mackenzie. In india, have a look at the bloodshed. 426 points on the sensex index. Some strengthen the dollar against the indian rupee. Take a look at my chart. You are looking at the biggest drop for shares in india since the u. S. Elections in november 2016. The first 10 minutes of trade, let me show you how this looks across sector. Andy single sector down what shapes up to be a closer than expected race. Bloomberg markets middle east is coming up next. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Yousef tax cut optimism spreads to asia, indexes rise. The President Trump says the u. S. A company will rock. The rand heads towards a threemonth high has agency delegates begin voting for a new leader. The countdown to the saudi budget decision. Will austerity giveaway . Bitcoin joins the big boys as bitcoin