Transcripts For BLOOMBERG Bloomberg Markets Asia 20171219

Rishaad a day of optimism. Record highs again for the big three. We will go into detail on the little later. This is an ultimate trading week of the year. We are malaysia, taipei, singapore, all starting the session. Positivity being the watchword. Sophie it is the watchword, indeed. Climbing in sydney, singapore, but malaysia is coming online in the red, down. 5 . Take a look at the big picture. We have bonds on the retreat. Currencies are mixed. Gameng on to last weeks gain. The korean won is leading gains. Is sticking and a narrow range. Japanese stock is fluctuating this morning. Cindy shares headed for the strongest growth since january 2008. Little change after the rba meeting minutes. Seeing we could also be we have not seen these levels since 1991. Sophie when you take a look at the big picture, when you take a look at the japanese equity contribution to the regional index, that will help fuel the fire for the regional benchmark to surpass last months record. When you take up the take a look at the rise of the nikkei, they are more impressive given their advance in light of the yen, holding on to last weeks gains, which are the strongest in about a month. We do have that to keep in mind. We are seeing swings for japanese stocks when you take a look at the topics. We are seeing pressure coming through on construction stocks. Lets take a closer look at the construction companies. We have kajima under pressure. Sell ate downgraded to ubs on monday. We see this investigation into the project widen. We did have a newspaper report that the company told the commission that it had colluded withdding for the project, the other three contractors. That is helping to drive on the topics this morning. Rishaad think you so much for that. We will get to that speech by the u. S. President , taking place on National Security. That and more on the first word news. President trump hasnt has addressed security. World that trading linking u. S. Prosperity with u. S. Security. At least six people died when an amtrak train derailed in washington state. Train services have been suspended south of seattle. President trump tweeted that the incident strengthens his case on infrastructure. Preliminary signs indicate that the train may have struck something. Releasing the Quarterly Report on china. Economic growth there will moderate in the next two years. The policy titans. Gdp at 6. 4 next year and next year and 6. 3 the year after. A new leader after a Bitter Campaign. The 65yearold Union Veteran was part of the previous scandalridden regime. He is also one of south africas richest people and was a when police code 34 striking miners. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Those tax cuts are moving a step closer. Republican leaders say may have the votes. Lets get to washington reporter jackie in sydney. Why is it so critical here . Collinsssusan announcement is a sign that the republicans have all but tonched the votes necessary pass this measure. Although one republican senator, senator jeff blake has support for the bill. Republicans can only lose one from their party, in order for this bill to pass. That is given that senator john mccain will miss this vote. According to bloombergs map, we do believe that senator republicans do have the votes necessary to pass the bill. Rishaad both chambers will vote. How does it pan out . What is the timeline looking like . Reporter the current plan is for the house to vote on the it toirst, before sending the senate. When the Senate Begins debate on the bill, it is possible democrats could argue that some provisions of the measure do not comply with Senate Budget rules and would have to be changed. Any potential changes would mean that the senate bill would have to go back to the house and need house again. Senate republicans have done a lot of work to ensure that some provisions that may not comply with the rules were excluded from the rule from the bill. It is possible to senate could vote on this bill tuesday or wednesday morning. We have other news and washington. House republicans reaching an agreement on the disastrous supplemental package worth 81 billion. How significant is this, really . This disaster supplemental package of 81 million 81 billion would support Recovery Efforts from disastrous hurricanes and wildfires faced by different areas of the u. S. This year. Some lawmakers, particularly lawmakers from florida, have been pushing for these funds to andir roads, bridges different parts of infrastructure that have been damaged i some of these storms. This package would help repair areas like puerto rico, florida and california. The funding is important because the white house, earlier, couple weeks ago, released a request for a supplemental request for 44 billion. This 81 billion figure is much higher than that. Lawmakers argue that the funds are needed to address Recovery Efforts from these natural disasters. Rishaad Jackie Edwards joining us from sydney. Lets have a look at what we have on the way with state owned enterprises, driving the chinese economy. Times are changing. We will discuss the importance of the private sector with global investments. Next, thanks. Prefer his asian markets over rivals. Getting some analysis as to what certain political machinations mean in south africa and india. This is bloomberg. Rishaad lets look at the business flash headlines. Aboutip sale, concerns south korea. Toshiba might have to offer insurance is that the deal will not be hurting competition. It is spending heavily to build its domestic industry. Nex is part of the group chips toshibas. Cutting the burning of coal. Official data shows that switching residential users to gas pushed up to 19 in the first 10 months of this year. Building australias largest coal mine after canceling a 1. 5 billion deal. The companies canceled all the accords. Finally because of the state decision to veto almost 1 billion one billion aussie dollars. Expecting movement in emerging markets today. This has implications. Director andive strategist is here. It is a win for the reformist. Exactly. We will see that in a constructive manner. It is his home state. A victory is a victory. Rishaad south africa, as well. That is being seen as someone who has enormous wealth. Not beholden to some of the most interested in the country. The Market Reaction has been really robust. It has jumped 12 from the inus low in the december. They are looking for a more moderate tone he is on track to become the next president moderate tone. He is on track to become the next president. South africa is a low growth economy. You are looking at between 1 and 1. 5 growth. Negative int is real terms. Right. Significantly higher levels of growth to lift people out of poverty. The market is jubilant. We are looking for more constructive policies from the next government. Lgtaad does it change the bank view . The dollarooking for to rally in the first part of 2018. From the currency side, it is best to sell. Is overshot a little bit on the strengthening side of things. We are looking for the dollar to gain steam in the first part of next year as of the whole tax story, which is gaining momentum. Fight that att to this point. India, i would say neutral. Septa to some degree also south korea. The big story will be japan. They have ¥226 trillion in cash and deposits on the sideline. Some of that will go to dividends and share buybacks. Corporate profits and japan are likely to be falling next year. Does that affect anything . Do you agree with that . Know, we do not. Going back to 1955, the average profit margin is about 2. 8 . The latest reading is 6. 8 . Something significant has happened. This has momentum. It can go into 2018. If we get a little bit of the yen weakness, that will strengthen the story. Rishaad does that translate to high wages and inflation . That is really the milliondollar question. Market in japan is especially tight. Under normal circumstances, that should translate into higher wages. Companies are actually cutting back on output, working shorter hours as opposed to hiring more people and paying them higher wages. That is a sticky situation that needs to be addressed. The jury is still out on this. We will have to wait and see. Rishaad i suppose when you get heady. E, it seems a bit fair, if you look across the world, the pmis are very high. Unemployment is falling in the countries where it should be falling area and it is a goldilocks scenario. I would not bet against a sustained correction and markets. Pmisd you talked about in europe. For the likes of spain and portugal. This is your preferred market right now. Absolutely. The european story has growth. It will be accelerating. You have relatively low wage growth, is except in germany, where it is higher. The ecb will stay accommodative over 2018, even though in germany we have signs of accelerating Wage Inflation. Comfortablen a situation to keep a very supportive stance. Rishaad lets look to the u. S. , with the fed looking at what happens with unemployment. The key will be inflation. What about the u. S. . What about u. S. Markets currently . We are taking a little bit of cash off the table. In 2018are looking for is Earnings Growth around 12 . Pretty good. The valuations are much higher compared to other places. It is a cautionary tone. It is a surge that can still happen. To be fair, evaluations have been higher in the past. However, you have cheaper markets in europe and japan. Dowaad do you think the and s p and nasdaq hitting it is on average 21 for the markets. This is a bit stretched, is it not . Rangeis, but we have a under the average. Slightly more expensive territory. Japan is quite fair. In investors have plenty of choice. We are recommending europe over the United States. I want to highlight the dividend increases and share buybacks lori in japan. That is not something that is well covered in the markets. Story in japan. That is not something that is well covered in the markets. Rishaad anything else you see that could be a headwind . If Wage Inflation in the United States, if it begins to jump all of a sudden it is at controlled levels. A lot of debate about the shape of the phillips curve. A lot of people are taking that view. Even the fed itself is looking at unemployment of only 3. 9 in 2018. That is really love. Rishaad you look at the participation rate, which is very low. Many believe technology has a dampening effect. The other thing that is key is the flattening of the yield curve, which is something investors have been worried about. We think people should take it in stride. Rishaad they get very much. The director and strategist. Planning on how to grow competition. This is bloomberg. Rishaad chinas biggest website is expecting to see robust growth next year, despite fears of domestic competition. James sayingan that the company will be one of their top players in the long run. As chinese currency becomes stabilized, and china continues to run a large trade surplus, i think that it will continue to grow very robustly in the new near future. Is only lessstics than 5 of people have a passport versus in the u. S. Where 20 of people have a passport. How would you characterize competition you are seeing domestically . Whether that is alibaba or others . Are they starting to carve out more market shares . It is still a very big market. They are growing very rapidly. One company specifically focuses on food delivery. They have been doing well. Our highend business is growing very nicely. Margin, it has a higher and the longterm wise, it has more potential. We think we are in a very good position. Tencent and alibaba are carving out a large sector. How does that affect how you navigate and drive the business . They are some very big players. The number of transactions they generate is many times bigger. Value, it is among the biggest up there. Travel will continue to be growing faster than the rest of the economy. Ctrip has a Good Opportunity to succeed in a nonchinese market. I think they will be one of the big players. Do not see would you consider further acquisitions in 2018 . We are always actively looking for a good fit for our technology and market focus. Confidenceat can marketogy and has presence in different parts of the world, we are always very interested in. What kind of technology are looking for . What regions are you expecting to present opportunities . Invested in air ticketing technology. The Consumer Brand in the u. K. , and also invested a few years ago in tribal vision, which is a Technology Platform for Lowcost Airline products. Those are the things we are , travel technology and Consumer Brands, and markets where we do not have a lot of presence yet. Speaking exclusively to our own Tom Mackenzie in beijing. We are counting down to the start of the session in hong kong. Futures are 10 higher. 5 to the upside with asian stock benchmarks holding on to their gains. Rishaad 9 29 a. M. In hong kong. Eastern seaboard of the United States. 8 29 p. M. On the eastern seaboard of the united rates. We have the secondary results of the trading week of tax reform gaining more. Could be taking place later tuesday. South africa is in the headlines, as is india. Reserve bank of australia results were out earlier saying that negotiations with the climbing a tad higher. 1261. That indicates that we have a situation where it is steady as she goes. Sophie a look at what is happening with markets on the mainland. Steady as she goes with our large caps as well. When it comes to the shanghai session, we are seeing little changed. Consumer staples dragging the most on shanghai stick shares. Going into 2018, chinese stock investors may expect better performance, as Earnings Growth is ticking up. Is according to southwest securities. He is the most accurate forecaster for 2017. As for the end of 2017, he is penciling in 3300 points given the Deleveraging Campaign. E are seeing gains of. 5 on some early movers in hong kong. Rising 7 in the market session. This after announcing an expected increase in 2017 profits, thanks to growing container demand and the pickup in shipping volume. On theptical could be track for a snap. On the index margin. This as we have a warped entering a deal with a company that owns land. 4 . Ng about check on casino stocks. They are on the radar with international on the radar after entering for an integrated resort in cyprus. They have up to four satellite casino sites. After being downgraded to holdingswe have extending losses for a second day. A last look now. You have a i. T. Stocks leading gains, along with energy shares. Shanghai dragging on the index. ,. T. Getting about 2. 2 tracking gains for i. T. Shares in the United States. Rishaad this criticism looming donaldmoment against trump and this new tax reform taking place, that it could be for the benefit of the rich. Lets get the details on that and first word news. Haslinda the republican story has a late addition that would provide a windfall to Property Owners like President Trump. It allows real estate businesses to take advantage of a new tax rate. Its beneficiary says the president has claimed the bill will not help them financially. As president mike pence has said to have delayed a trip. His tiebreaking vote might be needed. President trump plans to eliminate subsidies. The ministry of finance aims to phase out and discourage protectionism. The plan may be implemented in the new year. China is the biggest electric car market in the world. Carmakers would be entitled to settle government funds. Stock exchange investments in the new horizon ital says it has issued new horizon warns that if it does, they can and more will that are not legally binding. Japan Exchange Says that assessment of the situation is wrong. With rime minister is pain we came power. It would be the parties lowest tally in more than two decades. Show strong support for the politics of good government. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. President trump addressing security, saying the United States will pursue a muscular foreignpolicy under the America First program that has been his mantra. Any nation that ends of trading as prosperity for security will end up losing both. He also mentioned north korea and china and russia as rivals, but also as potential partners. Large. An reporter at reporter not going so far as to call them a strategic competitor. He says the u. S. Has strategic labelitors but do not china as a strategic competitor. He pulled his punches. George w. Bush labeled china a strategic competitor at the beginning of his presidency. China complained to so much that they never even used that phrase. The other phrase that could possibly have been used but was not used was economic aggressor. Rishaad that is what we were talking about yesterday. Reporter donald trump not use that term either. Is awe did end up with document, that some of the commentators are saying could have been produced by cooler Clinton Hillary clinton if she were the president. Protecting the homeland, protecting american austerity prosperity and advancing american influence. Apart from that, there were no particular tax on china. You can say they are a competitor, a rival, but also potential partner. What is the potential action here that the administration could take, and what they want to . What are the complaints . Reporter when he was campaigning, he said he wanted to put tariffs on china. Have not seen any of that. There is a document floating around in washington. We have not been able to trace that document, which outlines the source of tariffs that the u. S. Would like to put on china. This might be a document that hestes from someone like been in. We are not actually seen any of this yet. Steve bannon. We have not actually seen any of this yet. President trump talked about the unfair practices when he was in beijing. We have yet to see this draft of measures that the u. S. Is planning to take. Maybe they will wait until after christmas. The risk is that if they do something if they were really going to go on the offensive and call them and economic aggressor , you would really see a strong reaction from china because they would consider that to be the sentiment for a trade war. Rishaad will china do anything here . It seems like it was nebulous. I suspect we will not see much out of china on this. If they had gone so far to call them and economic aggressor, we would have seen a strong response from china. They came out with an editorial yesterday, based on the Financial Times story. If that were to be the case, some of the economic benefits that were supposed to have happened under trumps first term would disappear. There is nothing to retaliate against at the moment. They seem to have pulled their punches. Rishaad north korea was mentioned as well. Strongest sanctions ever against the country. Thank you very much. Coming up, we will be checking and global for china investments. This is bloomberg. Rishaad a quick check of the latest headlines. Buying a stake in chinas Largest Online retailer. Excess of a slice of the vip shop. Stake the previous with a in jd. Com. Alibaba announced a purchased a 5 of hypermarket chain. As expected, taking control of vietnamese. They use their vocal division to avoid rules on Foreign Ownership and emerged as the most dominant investor. Declinedafter rivals to take a bit. Chinas Group Selling its First Property investment in sydney. It was picked up for about 150 of aussie dollars. A30 3 gain in 2015. The sale coming after selling the building in london. The group is under official scrutiny after a global wine history. Buying history. Bank issued a report saying that the governments deleveraging policy will slow growth. A former pboc economist saying it is time to drop the target ardless area kathleen regardless. Kathleen, what does the world bank see here for china, in a nutshell . Kathleen they seem to have a great deal of confidence that china is on the path towards deleveraging, towards restructuring, towards more Financial Stability through tightening financial regulation. Over time, this will cause the economy to gradually moderate. Lets look at the report that just came out and look at some of the key points. In 2018. Slow to 6. 4 6. 8 in the latest reading this year. They say this is occurring as they rebalance from consumption. They see in the inflation situation that trade is growing, healthy domestic demand. The say that china, in current year is set for its first gdp acceleration since 2010. They say that things that will just greatng confidence. A stricter financial regulation, restructuring, all of these things will slow growth. They see this as a good thing. I want to put gdp and perspective. Into perspective. What you will see is our bloomberg forecast for growth. It is stronger than the actual growth rate area growth has come down from those redhot years that we took for granted 10 or 11 gdp growth for china. The turquoise line is the current target at 6. 5 . The target is being looked at at conference that started yesterday and will be wrapping up tomorrow. A lot of people say they will likely lower it again. Some say it may not be even needed now. Pboc to the economist saying that the growth target should be dropped altogether. Chorus. Ning the kathleen there are others who have said this. Bloomberg news has been covering this. This was in june. He left about a year or so ago. He said for a number of reasons, has target is outlived its usefulness and now they should be targeting unemployment. Lets look at an interview he did earlier. He said the first thing that is done with the gdp target is it is encouraging officials to boost investment. The two muchto borrowing. It is a risk we do not need to take on. The link between gdp and jobs is getting weaker. Gdp is not Strong Enough to support is Strong Enough to support stable unemployment. They will look towards surveys of an unemployment. Another problem as having gdp of ae target, there has been tendency to exaggerate. You cannot fake economic news. He thinks this will be a plus for the economy and government. This is what he is pushing for. As the economy slows, more people are jumping on this bandwagon. Gdp and find ae whole new target altogether. Will have to see what 2018 may have in store for china. Thank you so much for that. Thomas is here to look at that. Tell us about it. I suppose there is not a lot you can disagree with. Iswhat he is worried about gdp does not matter anymore. Growth,ortant is wage consumption growth and positivity growth. Rishaad and jobs. Exactly. If you look at different regions in china, they have been strong the last three years. Actually grown rapidly in the last few months. Rishaad it is something that is happening at the moment. How long can that go on for a population that size and a country that has the stated aim of going up the value chain . That means you will have fewer jobs being created. The chinese economy has gone for a very important transformation over the last two years. We are now exporting more medium to high tech products. Our spending has gone up more than 15 since 10 years ago. Remember november 11 sales. Even this year, sales grew more than 30 this year. The consumption is actually booming in china. Rishaad we have massive internet players which are under pressure to reform. They have some signs of reform, but do you think there is not people do not care so much about reform . Some will fail. It does not matter now. It is not the driving force of china anymore. It is a pile of factors. Job growth has gone from manufacturing. Rishaad as we look at the pmis and state official gauge, we have the official one that has been doing better than the private one. I do not care about the numbers. More important is revenue growth, sales growth in the private companies. Actually outperformed Market Expectations by a big margin. Fromad 40 we go from here an investment standpoint . The first half, we will see some volatility in the market because Growth Expectation in the job market, and the equity market is already quite high. We might see some monetary fiscal policy tightening in the next few months. That does not mean that 2018 will be a bad here for equity or foreign markets. , we are bond market actually starting to offer good opportunities in china in 2018. Rishaad where . I was sipping you are looking at the Corporate Bond market. I am assuming you are looking at the Corporate Bond market. There is a problem there. That means that these people have to pay that much more because theyve been on a buying spree. At theou look deservetal, it does not at this level, we are seeing more and more interest to invest in the china bond market from regional investors and u. S. Investors. Rishaad here today, only up. 5 . Seriously underperforming. Change . T this year, underperformance of asian markets has to do with of the financial deleveraging in the Financial Sector this year. That is why china is performing better. Next year, the market will do well. You have to be very selective. Looking at the market index may not be that meaningful. They have actually outperformed markets significantly. Thank you. Is an investment director. Higher. Inues to edge looking at the budget later today and the announcement coming through from riyadh. This is bloomberg. Rishaad as Oil Continues to edge higher, saudi arabia might see a light at the end of its off their at a budget later today with possible increases in government funding and plans to stick to its deficit reduction target. A lower deficit would be a welcome boost. Have a look at this chart. This is looking at the saudi gdp and nonoil gdp as well. , in essence, that oil is fundamentally important for the economy. Blue is gdp prices. White is the nonoil gdp story. Looking at a tough balancing act. Austerity versus stimulus. That is what they need to make when they announced the new project budget for the new year. The government has made progress when it comes to the the market. That suggests that the market needs 93 a barrel to balance the books of two third of government revenue. Revenues have been able to make some progress on that front also back of some of the ambitious reforms that have been initiated. That includes taxes on tobacco and soft drinks. We have had focused measures. You are looking at abu dhabi commercial take. They expect an increase in government spending. Bloomberg economics expect the economy could contract the question is whether it will be large enough to offset the impact that the anticorruption crackdown is having on Investor Sentiment quite sentiment . It has been a tough year for saudi equities. The budget announced later tuesday. Up. Aad markets are a former daughter is now on the board after we have the numbers. The pboc has arched to abandon the fascination with is urged to abandon the fascination with growth targets. In vietnam top brew seems to be an acquired taste for some as many big names stay away from the purchase. I am Rishaad Salamat in hong kong, this is Bloomberg Markets. Rishaad bank i have us a fun factory. We have had to 70 record highs up to now in 2017, unprecedented. Let us see how it is playing up, it is also a situation where we have three major indexes and that s p. All hitting record highs this year. Theyre all back in sync. That shows how many times the stock exchanges have hit those records. From the beginning of them march a littleber, it was bit steady but since then it has been oneway traffic and that is. This means the dow jones and has hit a record high on average every four days. There you have it, but as get to sophie. We have a few records and some of them off records as well. Yes come the index is a little bit shy up surpassing last month record. Station stocks are higher, bonds retreating. Consumer and Health Care Industry groups are losing about a 10th of a percentage. In japanese stocks, their fluctuating and losing some of the days early momentum. There was a little bit change or century highs. One of them is headed for the the aussie dollar has had little change after the rba eight minutes. Aussie bonds are on the decline. Chinaall clap tech heavy stocks are rising a much is 1. 1 this morning. Shares in hong kong are grinning ground, we have two tech shares rising for the first day in seven days, but the stock has fallen every day this month except for one. They lost about 35 in that time. A positive profit alert which has raised the prospect for animation in china. This company, long King Holdings is the best performer. Byd electronic is costing a six day drop jumping up a bit. Has jumpedin tokyo the most in three years after it received usda u. S. Fda clearance for one of the products. s leading the drop amongst japanese construction firms caught up in that my glove real investigation maglev rail investigation. The worst drop on the nikkei 225. Rishaad right, what else is going on out there. Let us look at the markets and see what is going on in first word news with a fresh report focusing on beijing and its economic plans and what it should be doing in the future. Here are the details from singapore. This company has released its Quarterly Report in china for seeing moderating growth over the next two years as a leveraging palaces cake in policies kick in. Slower investment and easing factory inflation will test the governments determination to maintain tighter regulation. This factory factories in the United Kingdom at the highest level in the most three decades. The confederation of british 17,stry index remained at marching its best results since august, 1988. The brexit negotiations are facing a new hurdle, written cannot expect a new deal but theresa may come of the Prime Minister says that every new deal is a de facto, unique. When everyone thinks about, every trade agreement is bespokee stoke agreement between the parties concerned. That is certainly what we will be looking for in our negotiations with the eu. President trump has addressed securities saying that the u. S. Will pursue a muscular Foreign Policy under America First. He warned the world that any nation which ends up trading its prosperity for security will end up losing both as it soft to link the u. S. Prosperity with National Security. He also mentioned north korea and china as rivals but. Otential partners china and russia as rivals but potential partners. After a Bitter Campaign to succeed the south african a Union Veteran was part of the scandal but managed to convince delegates that he has become a reformer and he is now won the election. He is also one of south africas richest people. Global news, 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. I am Haslinda Amin, this is bloomberg. We had sophie talking about this earlier, its stocks reportedly higher. Let us get back to singapore and joint mark cardinal. How this ist feeding into the glass being half full. Reporter absolutely, we are getting a bit of a christmas rally, a good mood out there. It looks like tax reform will now be passed before the end of the year and it was only a couple of weeks ago when it seemed unlikely. With him because it not seem to have all the votes in the senate or that both sides would agree, was the house and the senate, on a final bill before the year end, but it now looks like we are there. There is a feeling of optimism especially at this time of the year, when you do not want to fight momentum trades. U. S. Equities have very good momentum. Asia is feeling the feelgood atmosphere at the moment. Rishaad one of the other things going on at the moment, this is in the blog, the dollar weakness is being the broadest in the decade . 2017 was a terrible year for the dollar. This time of the year ago it seemed like a consensus for the eurodollar ahead. Now we have gone and the other this time of the year ago it seemed like a consensus forextre seem to be bearish on the dollar. We tend to think that the markets will struggle again, the dollar will struggle not as much as 2017 but the cycle is still positive. At thisomic cycle stage, it is normal for analysts to chase higher yields and go to places like emerging markets where the growth gap is widening. A are expected to grow faster in establishycle, and markets are expected to grow slower. So the margin is widening which is fueling the investment chasing higher yields away from the u. S. And to other assets. To flattenontinues as well and the fed will continue to hike rates, but unfortunately that will not help that curve. We will see the curve flattening further. Rishaad the more people i speak to a death desk, looking at the u. S. Being late cycle as you suggest, looking elsewhere, japan seems to be the most attractive at the moment amongst the developed markets. Yes, i think that is a great story in a japan. The market never recovered from the crash at the start of the 90s as equity markets remained lower than they were then. But we are starting to get a higher multiples in the equities market, slight improvement in corporate governance, and real signs of growth in japan. It is also important to emphasize that while inflation shows signs of growth in japan, it is not exactly fast growth, it is still expected to be one of the slowest growing economies in the world next year. There was a lot more potential in the nikkei, that it is still way off its records from 30 years ago, while nearly every other developed market in the worlds roaring to new records on nearly a weekly basis. There is a longtime catchup story in japan but it is possible. Rishaad that was a time when you could argue that the stock market was the mother of all bubbles. Let us move away from that and look at the more considered impact on currency markets, and general markets. Two reformers in india and winningsouth africa, politic all victories . Guest i think the south african one is the much better longerterm story. Shift that isund happened here in south africa which will change the whole narrative for next year. Focused onill be real yields but the currency and bond markets in south africa it does not change the Economic Outlook from being where it is to super positive, unemployment is still skyhigh. But suddenly, the market is no longer going to be worried about the risk of a terrible economic outcome. Risks, peoplehat will focus on those attractive real yields. I think south africa will remain volatile, the rent has appreciated 12 in the last 12 weeks the rand. So i am seeing very large moves which show that we could show some volatility in the shortterm, but over the next year, things are looking pretty positive. In india, the macro story looks astrack, but with as many eight state elections next year and a general election in a 2019, the politics will continue to drive volatility. The overall story in india is incredibly bullish and positive but certainly investors are saying that maybe there should be a little bit more Political Risk premium priced in. Rishaad thank you very much, mark cardinal, joining us from singapore. You can follow what he is talking about on the markets live blog on the bloomberg terminal. Can also go there to find analysis from him on what is affecting your money right now. Looking ahead to what we have on the way, germanys Biggest Online travel site saying that beijing is hurting innovation. Will hear from sea trip ctrip founder later on in the show. This is bloomberg. Rishaad economists are keeping the growth momentum german next year by global demand. There are some bumps in the road from Regional Elections and Central Bank Decisions here as well. H will discuss this with the the hsbc chief asian economist. Broad look at this in a microbes cents before we look at some of the other individual countries and economies . Guest sure. If you would like to look at the outlook for next year, generally the economies driven by domestic demand and. Policies like indonesia and philippines. Then there are economies like singapore and malaysia which are externally driven. Depending on your own view comes down to the specific economies. China also of course, plays into this. Growth is relatively steady into expect a sharpe deceleration in Property Investment in Infrastructure Investment in china we believe has peaked. Rishaad but there are building more bridges, that is supposed to be the case . Guest precisely, but we expect it the driver of experts in the region to be a little bit more focused on the economy side. Of vietnam, likes myanmar, does that mean that these three economies do better as the vacuum means of a are sucking imports from the three countries which helps them along as well . Guest precisely. Not all of the benefits will benefit, they need to have for manufacturing policies, and vietnam has really taken advantage of that. Lg actually just open up a plant in a northern vietnam to produce screens for shipments to china, so you see some countries moving up into that. Rishaad so they are going up the value chain, as well as china. Thiss look at indonesia, is the consumer consumption story. There are not doing brilliantly on the consumer side, there are a few bumps there . Guest yes, both countries have seen consumption slow slowly. What we have seen over the past two years has been an investment story as the government prioritizes infrastructure over other drivers of growth. Been asumption has little bit surprising particularly in indonesia and rethink it is because it some factors that were slow down last year. The government continues to prioritize tax revenues. So high and consumption suffers a little bit. On the low end of consumption you see the government moving a lot of cash transfers through all electronic payments. Rishaad that is happening all over the region, right . Guest yes, but consumers are pushing back, into the coming months and quarters, meaning that the consumer becomes a little bit more resilient to weather to downturns. In the shortterm term were seeing an impact in the data. Rishaad what about the philippines . You say this when the indonesians but is it more deepseated for the philippines . Guest our fundamentals for the philippines look good. Rishaad they are having the most amazing growth, the highest in asia, is it not . Guest yes, and what is particularly impressive about the philippines, private consumption is about 70 of gdp but what we are seeing is that investment is making significant contributions to growth. The consumer has not really lost that much shine, wiest continue to see we continue to see strong inflows. We saw consumption come down a little bit that when you look at that Domestic Labor market, we see a lot more jobs in construction because of the infrastructure growth. We see an increase in aberrant eyes nation which may have some short urbanization which may have some shortterm impacts on the economy. Rishaad it is an economy which is so reliant on overseas workers. Also it is, but is increasingly less reliant. We are starting to see domestic pick up, domestic hopefully manufacturing at some point. We are seeing an impact on construction jobs. Rishaad can they afford it . Can,. They if you look at the past three administrations, they have been reducing tighter fiscal budgets evenutting down on debt, them more fiscal leg growth. They actually said they would move up there deficit target and spend more on infrastructure. It is addressing the key problems in the economy. Rishaad what amazes me about the philippines is that it is a country which has the most english speakers, it should be one of the powerhouses in the region, shooting and shouldnt it . s there. S, the capital in the last 10 years, they have taken a lot of jobs from india because they saw a good opening for philippines competing advantage. So we are seeing a lot of Companies Taking advantage of their skill sets. Malaysia. Et us go to they have an election next year, an election. How important is that . Guest we look at it more from the growth impact. Think that will be affected . Guest the government is trying is trying to pursue fiscal consolidation. Generally we do not expect any big changes on the broad strategic outline for the economy. The shortterm, we see private consumption continue to be strong next year. Rabbit investment in the country has been strong, it will become partly funded private investment in the country has been strong and over all the economies doing very well. Even the midterm elections will economy and we think that vietnam will also be able to hike rates in the First Quarter of 2018. Rishaad we have a military government, and neck november we should be seeing a change as it get to a partial institution of democracy. How is this contributing to the country . Guest when you look at thailand, they benefited from a pickup in the world trade this year. Of theker Component Companies actually private consumption and private investment. After the elections, we actually believe that we could see a improvement in private investment because there could be more certainty. Expansion in thailand, that is where politics plays in, the uncertainty factor, having that out of the way would really boost the economy. Rishaad has it affected the sentiment for foreigners trying to invent invest in thailand . To see veryntinue strong influences in thailand. There has not been a reverse in that sense, but in the longer fdi,private investment increasing investment when it comes to tax policies, any country wants to see political certainty. Rishaad where the World Economy goes, singapore follows . Guest that is true, it has a really significant Manufacturing Sector and has an affinity significantly from the electronics up turn. Rishaad and also how they are powering ahead with some of the new technology, things like Artificial Intelligence for instance . Growingt is true, ai is in the scheme of gdp though, it is not driving it. Increase inhe growth in the last quarter was in the foundry producers sector which only employs 1 of the labor force. Rishaad extraordinary. Guest private extension has not been Strong Enough in singapore, even though you are seeing 1015 growth. We expect that to normalize next year. Rishaad any implications in the mass . Guest they committed to an extended time frame of neutral policy and by april, it would be 24 months, six more months in the last them when they were in a neutral policy. So we think the time is right for the mas in april. Great staff. Ph, from hsbc, the chief asian economist. Some things the highlight for you on our bloomberg terminal, interactive function on the bloomberg. Thecan become part of conversation and send us in some messages during the programming. It is for bloomberg subscribers only and it is tv. Rishaad we are having a look at the latest business headlines. China opening up a review of toshibas memory chip sale. Saying that it is concerned by the role that korea is playing in that. Biggest market for semiconductors and is struggling heavily to build up as industry. Is biggestso ordered Energy Explorers to cut their use of natural gas. China has been scrambling to secure more gas for its residential use as its plan to tackle pollution and the burning of coal. Gasresidential use for pushed demand up 19 during the first 10 months of the year. Adani enterprises is set to build australias biggest coal mine, making a merger with the company and counseling its deals with another company in queensland. His is due to the states decision to veto the merger. Singaporebased chip maker global a ntl electronics has filed for bankruptcy. Had more than 1 2007on in debt during the merger deal when it claimed bankruptcy protection in new york. It said the rising Interest Payments prevented it from meeting the rising demand out there. Coming up, in india, is the Narendra Modi magic failing . With its weakest result in years, we assess the political implications for Economic Reforms in india. 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. Rishaad it is 10 29 here in hong kong, 1 29 is sydney in the afternoon. Here is a check at the headlines. A late addition to that ripped public and tax bill the republican tax bill. Cap is trying to take advantage of any text break and observers they that its beneficiaries include the president who has claimed the bill will not help them financially. Vice president mike pence delaying his middle east trip in case his tiebreaking vote is needed. Ae United States has vetoed Un Security Council resolution saying that it was an insult that would not be forgotten. Washington would kill the motion to rescind the president s decision but supporters want to show the depth of global opposition. The u. S. Ambassador to the u. N. Nikki haley used her first veto to block that u. N. And resolution to block the recognition of jerusalem as the them as the capital of israel. It is one more example of the United Nations doing more harm than good in addressing the israelipalestinian conflict. Simple act of deciding where to put our embassy, the United States was forced to defend its sovereignty. Is apparently ending subsidies for electric cars and other vehicles to discourage protectionism and rein in provincial expenditure. Could be implemented the ban could be implemented in the new year. Carmakers are said to still be entitled to Central Government funds. The tse is being attacked for failing its duty as a market referee. Fund new Horizon Capital, says that some of the regulations it has issued in the last two years new horizons says that if it is stripped of its power, companies will ignore rules. Some of the banks say that that investment that assessment of the situation is wrong. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Rishaad we will take a look at on vietnam. Ting distancingverage is is trying to purchase other beverage companies. We are joined now by Haslinda Amin, this is a pretty bold move by them, isnt it . Guest it is bold and expensive. And that is reflected in this talk price which is currently down. 5 . It had gone down as much as 1 early this morning, so investors are not sure whether was a good move or not. Sabiko at a 3 traded, from the last price, this has been touted as a hotly contested auction of vietnams biggest asset sale. But as you said, time beverage bitter. Biggest other players like san miguel, anheuserbusch, they thought it was just too high, the price, given the stocks which have always risen 60 year to date. Some say that the price paid by tight beverage was too high, even though it gives the Company Access to a huge market. The other side of the story is privatization drive. The sale takes it up a notch, the existing government stakes in some of the Biggest Companies in the country, after years of delay. It has already changed the rules to speed up the privatization efforts next year. Rishaad what is driving growth in vietnams drinks market at the moment . Is it the usual story of the rising middle class, or does it go beyond that . Guest it is a rising middle class along with the young population. Some of the estimates suggest that the beer market in vietnam has alreadys mean for 200 growth in the last 15 years. So there is tremendous potential. But it is not just that, the stake in sabik alsoo opens the door to other possible synergies. Hait is key is that tah beverage wants to extend its hold in india and other places. So this could be seen as being in line with its overall strategy. I am sure you know this already, the company is controlled by a billionaire, and it seems that he is confident that this will pay off. Rishaad thank you for that, Haslinda Amin. A look at the markets now, were seeing record highs for the dow, s p and nasdaq. Sophie kamaruddin has the details. Kathleen the picture has turned more mixed. Sophie we have the kospi under pressure and it has been lagging. Given the moderating Economic Data that we have seen of late, latestday, we had the people he i november signaling that markets me profits may be easing. Havea look elsewhere, we malaysian stocks under pressure but benchmarks are being taken higher by sydney as well as hong kong. Aussie shares are at a generate, 2008 high. The nikkei 225 close out the mornings session with little change. Tokyo stocks are also being dragged a little bit. The hong kong dollar, the currency is weakening to a threemonth low, and chinese stocks as well. Back fora mixed equity markets today. Rishaad yes, the Deleveraging Campaign in full effect, we have so many different views on this. Just today we had a world bank saying that the Deleveraging Campaign could see Economic Growth moderating in the next two years for china. Given this umbrella of concern we have had regarding this leveraging campaign, shanghai shares have lagged as well as offshore chinese shares. We have them here in the graph shown in white and for the onshore shares and yellow for the offshore shares. Lead to says this will more defaults among troubled companies. And rishaad, we are seeing some companies who are the latest casualties as Company Defaults on Asset Management products. We have other banks advising clients to take profits and redeployed capital in mid2018. The globalization drive is to favorhem continue chinese equities. Southwest securities is also seeing m a activity, we are theng some changes for shanghai shares. We see tech and financials leading gains along with consumer stocks, but energy is weighing down along with material stocks. Auto shares are mixed, mostly higher. Given the reports we have had that china may keel subsidies for electric and other energy vehicles. Sophie thank you, kamaruddin. We are an hour away from the open in mumbai. Against that backdrop of the ruling party, they are set to obtain power in the Prime Minister Narendra Modis home state. They capitalized on a voter discontent with policies such as the withdrawal of rupee notes, and this is why we are going to mumbai to talk to our reporter, janet rodriguez. How does this market whiplash compare how does it compare historically . Guest as you rightly printed was this shows that there some springs in the market. It was not an easy victory for the government even though they managed to maintain control, and we are seeing that the ruling Party May End up losing the state. The market rebounded when trends became clearer as the day progressed, and ended up at a twoweek high. Rebounding 3. 5 which is quite a lot. We hear that many voters in gujarat went for none of the other none of the above candidates. Talk about that. The abovet none of vote was definitely an important factor in this election. Almost 2 of voters chose to reject candidates across the entire spectrum in gujarat. The none of the above voters as we call them in india, they are just 2 of the vote, not the swing vote. Some interesting trends which have turned up from the election such as one in three seats in the election been decided by a margin of 5 or lower. When you look at these numbers, you realize that the 2 could have probably caused a swing in some seats as well as the bottom line. More indians want changes in the way that policy is conducted, that is the bottom line. Not just for the ruling party but also for the opposition as well, this has to be weighing on their minds. Rishaad what are the implications than for the election in 2019, it is a long way off still . ,uest the elections in 2019 the National Election, is a long way off, but in the next 12 months, we have as many as eight states in india going to the polls. Each of them will be key to deciding the fate of the prime as ater Narendra Modi build up to the election. There was voter discontent in gujarat, the issues were jobs and unemployment rates rising in india. We have seen sweeping policy change with this government which Opposition Party is tapping into the discontent against. We have seen as i have said, we have eight state of elections coming up and they will be key to decide the fate of the ruling party. Jeanette,hank you, joining us from mumbai. It will take a break and then look at the demographics behind an Innovative Society in china. An exclusive interview with the founder of the trip bank next. See trip. This is bloomberg. Rishaad chinas growth cycle is focused on the annual it Central Economic conference. People are starting to look at what they mean by growth there. The question is being asked about the gdp growth target should stay. The world bank is saying that the governments push to reducing deleveraging may take an effect on the economy. Is that the case . I have Kathleen Hays here, our Bloomberg Economics policy editor. Kathleen it seemed like such a killer of Chinese Government approach to growth, is changing. As china grows and the economy grows, it looks like policy may be evolving too. The world bank a couple of hours ago came out with their latest report on china and they see growth slowing any way over the next couple of years as deleveraging, takes a bite out of the economy. 6. 4 growthdicting next year, down from 6. 8 this year. 6. 3 percent in 2019, as they rebalance away from invest went to work on option. This is going to help slow growth, and it is a necessary slowing. They believe that inflation outlook, global trade, healthy domestic demand, these will continue to keep the economy on track. This, thisy, look at year, gdp in china is that for its first acceleration in 2010. He seemed pretty positive about what china is doing the that in the future, Monetary Policy will remain prudent, they will be restructuring, and it will slow growth, but they still see growth at a healthy level, nevertheless. What people are questioning is whether china will take these steps. If we look at this graph, you see that china is financing which can be seen in the turquoise lines, it shows that china is not really deleveraging the debt that much, but that is getting bigger every year. The gdp has gradually leveled off in the six to 7 range, and you wonder. If you had to create that much debt to keep the economy growing, what is going to happen next . This is the one thing that people are hoping we might get a hint from when the Central Economic conference wraps up on wednesday. A lot of people are saying that they will at least reduce the growth target that i think getting rid of it altogether would be a bigger step. Rishaad that races on, isnt it. Chief economist thinking that they should be doing that as well, that is sound, isnt it. Kathleen i think it is interesting because the chief economist at the pboc at the he thinks that it is time to drop a target on gdp, but he actually thinks we need a new target on unemployment. He says that having the gdp growth target has been a problem because it has encouraged officials to try to meet the target, boosting investment more than they need to, increased risk with excessive borrowing. Out that in points the past, the link between strong gdp and a stronger jobs was important, but not there is more of a shift to services and the link is getting weaker. Gdp at 6 to him, is plenty to keep unemployment stable altogether. Economist just told you a few minutes ago, thomas, that the gdp target doesnt need anymore either. Take a listen. Gdp does not matter anymore, whether it is 6. 8 or its. 3 . What is more important is wages growth, employment growth. If you look at the job market in different regions in china, it has an very strong in the last few years. Provinces, western job demand has been growing rapidly in the past few months. Kathleen there you have it, the investor seems to agree with it as well. Had another one saying there have been questions about the validity of a lot of chinese Economic Data, and hes as that focusing on unemployment would help the government push on focusing on the accuracy of the labor market data. The meetingt wraps up on monday, we will get a hand on what is going on with that gdp target. Rishaad thank you so much, Kathleen Hays in new york. It has been two years since china and at its one child policy but the impact on that could last for generations. Impact of that policy could last for generations. There is a belief that this could affect future innovation. China right now is growing very well, it still has a young population. But because of the policy and its restrictions on family and childbearing these, it will have a negative impact on chinas future. The Chinese Government is just making the first step to get rid of the one child policy, but it is not enough. There is still a lot of policy improvement, room for improvement in the area. Reporter what action specifically in terms of could be taken to mitigate some of those challenges . Guest first of all, get rid of all of the restrictions of any childbearing. In the long run that is not enough, like many other asian without anyven restrictions, you still have a very low fertility rate. It is just like many countries in the world, and china needs to have a profertility policy. Reward, givingal all kinds of benefits for families to have more than one child. Been a big push for automation in china, we are seeing that with a growth in the use of robotics. What role can that play in offsetting some of the challenges . Guest i think for routine jobs, robots and Ai Technology can really help. But for innovation jobs, that human touch is really important. There is also the fact of scale. When you have a big consumer market, the advantage of a bigger country in innovation is huge. For example, chinas internet market is the largest in the thed, which has fostered worldclass internet companies. In the future, china will continue to leverage the scale but the scale effect is going to by theered or curtailed past mistakes in the population policies. Reporter one debate going on in japan is immigration. Is that something that china may need to look at, opening its doors to more immigration . Guest that is something on the table, that china with such a big race, i do not think it will have a big impact to solve its problems unlike smaller countries such as singapore which have really leveraged immigrations. But that is a small way of mitigating this problem. Rishaad ctrip founder and chairman taking to our own Tom Mackenzie. Coming up closer to home, the Community Malls edging out hong kongs highend shopping centers. We find out how they are doing it. This is bloomberg. Rishaad with christmas fast approaching, hong kong shoppers may be finding gift closer to home. Socalled Community Malls built under Public Housing are becoming more attractive to consumers. We have someone your text in the. Please tell us about these malls, luxury malls in hong kong have been under pressure but they are doing ok . Guest yes, they are a fairly unique thing to the hong kong economy. These malls are a bit of a mall,st to the ifc pacific place. Middle geared toward income shoppers and located mostly in the new territories. They are unique in a sense in the they are located underneath this huge take residential complexes. So people have to go through them to get home, so they have a captive area, a captive base of shoppers. This benefits them tremendously, especially when the retail climate is tough. Goldman people like sachs and other Capital Companies are moving in. Is it great recognition of the retail in and hong kong as being one where there has not been a typical fallback, but a structural one . Guest i think there is definitely a structural element to it. Ecommerce is definitely here to state. Could argue that ecommerce is definitely here to stay. When of the Investment Companies argued that the malls are much more insulated from retail and are much more able to withstand the structural factor. Also in terms of the economy, it is a defensive play the cause of a captive audience that they have, they work better in this down environment for retail. You also have the element that mainland shoppers have been going elsewhere, which has hit the upscale malls in central, the committee malls did not ride the upside so much and thus are not being hurt very much by the downside. Rishaad are there other scenarios where these types of malls where these types of malls start outperforming the big malls . Guest you do see a dramatic turnaround in the hong kong sent shoppers sentiment and you will see more of an upside in these malls. The return of the mainland shopper, the mainland luxury shopper, these malls would not benefit from the. So you could be safe from the downside, but not exactly the same upside as for instance the highend mall. Rishaad thank you very much for that analysis. Let us tell you what is coming up on the program as Bloomberg Markets continues with the ingles. Glis the market recovered towards the end. Does this make the indian market that the movement in the indian market make the Prime Minister and the ruling party a little bit defensive . And the other thing were talking about is saudi sentiment for the expansionist budget. That is coming up next. Course, we are joined by sean taylor from dorchester management to talk about all of these key issues. David it is a 11 00 year in hong kong, 2 p. M. And igneous you are watching us from there. Week forhe penultimate markets in 2017, welcome to Bloomberg Markets asia. David markets are up as tax cuts move closer in washington. Republicans saying that they have the numbers. A former daughter is now on board. President trump repeats America First calling for a muscular Foreign Policy. Saying that russia and china are both rivals and potential earners. Helping saudi arabias he the light at the end of this austerity tunnel. Years budgetxt which a lot of people are seeing is fairly expansionist. When you look at markets as expansionist it is a key issue for 2017 so far. Theasiapacific coming off record high, 1. 94, about. 6 short of the estimate. Also tokyo, here is my chart, we are back at levels of a quarter century ago which sort of things to mind how far we are from the heights of the 1980s. We are still about 37 away, and the title here alludes to a lot of people have already seen the star wars movie. So you could say we are a galaxy far, far away. But here is a Silver Lining is you can the on the chart, our eps growth, this is while at of people are still very bullish on this market, going into 2018. If not one of the favorite, it is one of the top pick for many of the people we speak to hear because of the earnings story coming through tokyo. Darkside doese loom over tokyo today, and sophie is here to tell us what this dark force is all about. Is not david, the force strong with japanese contractor stocks which are the worst performers today. There are alleged antimonopoly violations in the bidding for lev rail project. So you have some Companies Performing very badly on the nikkei 225 and they are seeing the highest trading volumes. They are offsetting gains that weise the in discretionary res such as tex discretionary shares. Shares hong kong, tech are the hero. You have this one jumping after losing 10 in five days through monday, optical having gains raising 5 stopping a fiveday losing streak and tencent set for the highest close of the week. Bank came outld today with a revised forecast for next year, tying in the deleveraging drive perhaps pulling on the numbers. One of the Asset Management firms also came up with a warning of default, what is a story there . Sophie this Deleveraging Campaign is seen as adding to trouble ford that holding companies. So some of the companies which have defaulted on its Asset Management products, these companies are coming under scrutiny from chinese regulators. So rising borrowing costs ares had to be leading to risk which is what we are seeing in china. We are seeing chinese investors still looking for some outperformance in 2018. Although chinese shares have lagged as compared to their global peers throughout most of 2017, we are seeing 3700 points for the shanghai composite by 2017 close. Tech has been a bright spot given the rally that we saw in the u. S. Which helped to push this s p 500 to new records. David things are looking up in the land down under . Guest yes, that is the case. Aussie stocks are looking good for the beginning of 2018. But the aussie dollar is not wake ofch in the the rba meeting there, and were expecting the minutes to come out soon. Overall a light data day for asia. David and of course we do have the world bank update there. Thank you sophie, for the up date there. Here are the revised numbers from world bank and with that is Haslinda Amin with the first word news. David, the world bank has released what a report on china saying that the deleveraging policies are gradually kicking in. The bank is expecting a gdp of its. 4 in 2018 and 6. 3 the year after. 6. 4 in 2018, and 6. 3 a year after. Ae republican tax bill has late addition which would provide a multimillion dollar windfall for Property Owners such as President Trump. It allows them to take advantage of a new tax break and advisers a that its beneficiaries include the president who has claimed the bill will not help them financially. Vice president mike pence is said to have delayed his middle east trip in case his tiebreaking vote is needed. Indian Prime Minister Narendra Modi is poised to retain power in his home state after an election enough is a bellwether ahead of the National Election in early 2019. The party is leading in 19 nine eats in the 182 seed legislature in gujarat, but it is the partys lowest tally in more than two decades. The results are seen as strong support for the politics of good governance. At least six people died when amtrak trail derailed as it left the station. Train services have been suspended top of the at all. President trump tweeted that the accident strengthened the case for an increase in infrastructure. However, officials are saying that preliminarys lines indicate the train may have struck something. You are watching bloomberg. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. President trump has repeated his America First campaign logic, calling for a muscular Foreign Policy and warning global rivals not to undermine u. S. Traditional interests. Our asia government reporter david tweed is here. Some who fearre that he might go as calling china a strategic competitor. Did it happen . Guest no, he talked about strategic competition, an issue that the americans have to deal with with every tool in their asset. But he did not label china as a strategic competitor or indeed an economic aggressor which have been reported in the Financial Times. We had the global times yesterday, the Chinese Party newspaper coming out and warning that calling China Economic aggressor and following that up with any sort of punishment would lead to a potential trade war, which hurt the u. S. It the u. S. Economy. David is there anything to be considered in his speech, any actions . Guest no, there was nothing really outlined in the 55 page report. The National Security spokesman on the nn, hes said that he was not actually sure that trump had read the entire 55 page document. Security spokesman on the nn. From whatkes away trump used to talk about on the campaign trail, saying that he ld tariffs on china increased tariffs on china. He it has not come yet. David and the dialogue is still ongoing, of course. Broadly though, how is china reacting to all of this, or the lack of it . Guest we will probably get an official reaction this afternoon. There has been an article written from china daily, the news april, and they make the nt that despite chinas trumps chinabashing on the campaign trail, what he is doing now is stepping back and talking about wanting to build a stronger relationship between the two countries. It also makes a point in the conclusion that it is hard to the how President Trumps instinct to withdraw from Global Leadership commitments like Climate Change actually square aim and goal to make America Great again. So it is a pretty balanced was once, i would say. David the other development which came out this morning was that the u. S. Was casting the blame on north korea for what nacrycall the currently wa cyber attack. How does that complicate things . Any country that might be providing Internet Services, someone has to be providing Internet Services to north korea and linking it to networks so that north korea can get its viruses out there. Up to theseoes countries and says, we want to do something, it can say, we have heard a rumor that north korea might have in behind wennacry, and they can say want to do something about these and other types of cybercrime that might the emanating from north korea. David does it make it more simpler yes. Thank you, david. Looking ahead to what is coming up on the program, a reality check in india. Narendra modi in his homes date of gujarat, almost losing. Next, market implications of changes at the top of the anc, the African National congress. An interview with someone from deutsche Asset Management. This is bloomberg. David this is Bloomberg Markets asia, i am david ingles. Heres a look at the headlines. China ordering its Biggest Energy x hours to cut their use explorers to cut down their use of energy. Official data shows that switching industrial and residential users to gas push their demand up. China, the country is opened a review of toshibas flash memory chip sale saying that they have concerns about the role played by a south korean company. They say that toshiba might have to offer a way to prove that they are not harming competition. Toshiba is also china is working tremendously to build it Semiconductor Chip industry. Has nowai beverage purchased a controlling stake in unit tousing its local avoid rules on ownership and emerging as the most prominent investor. Make rivals declining to their own bids such as Anheuser Bush and san miguel. Shares officially closing unchanged after that purchase. We are expecting a lot of movement when it comes to emerging markets, especially with what is happening in south africa and india. Joined we had the new leader of the anc taking his place at the top. Also events in gujarat after the india midterm elections. I am joined by someone from deutsche Asset Management. We have had a lot of news and it is only tuesday. Things have sorted themselves out, so what are your initial thoughts on whether or not this becomes disruptive at this point and what is next . Guest i think the election is ready positive for progress in india. David even with a small majority when . Guest yes, i believe it could have gone much worse. I think all of the reforms that Narendra Modi is putting in will not please everyone but it is leading to massive growth and hopefully better earnings next year, which we did not see this year. South africa is an interesting one because we have had a very volatile currents the over the last six months. In the last week, we saw the up 13. 5, peaking 12. 7. Ight at 12. 6 and now the key will be whether the party holds together. Whether the new leader can get through any of his reforms. One of the things you have noticed a lot in asia, david, one of the themes and been talking about a lot is that since new government goes in, whether it is president xi jinping, Narendra Modi, president duterte, when you put reforms,rruption changing red tape and bureaucracy, it flows down growth. Initially people are happy when new reformers come in, but to get there, it takes longer. The third arrow in a japan, is a good example of. It is easy to monitor this, but this task takes a long time. That is a challenge in south africa now, i think. Up,her the growth rate goes when it goes up they will be a better quality growth rate. David as for the rand . Guest the rent has strengthened a lot and it will hopefully strengthen further on into meant but i think fundamentals will take in. David because when it comes to the rand, it was battered quite deadly this year as ashley in first half, and this was do the to the public this was due to the politics. You think the politics is that the worst of it is behind us . Guest it depends whether the new leader can get. Inked. Through if you look at the composition of the party, it did hands on whether this six key leaders work together. At the moment it is 5050 between the two parties, that will be the key. I expected to be positive because i do think and we have discussed this in the past, new leaders now realize that they cannot act the way the other people have acted, they have to deliver or they will be voted out. I think that will be more important than worrying about politics. David going into next year, you still like emerging markets. Is that the safest place to be within equities . Guest i would not say it is the safest possible place in emerging markets. We have a quite heavy election timetable in asia as well, we have mexican elections outside of asia, and i still expect that we will get a bit more volatility in terms of political noise in turkey and russia. Economichave good growth and low inflation earnings picking up, 15 earnings next year, it is not going to be like this year. Bad forr was pretty ratings in china and india, so we expect doubledigit returns in emerging markets in asia. In terms of your preference geographic in asia, is it north asia over Southeast Asia . Guest it is getting more selective now. Overweight oness india and adding to that, now. We are taking money out of taiwan and korea, and technology will be the real key. We will be more selective than we were a year ago. David you are calling it structural technology, i believe. What does that mean . Guest we are breaking down technology into three different areas. The internet space, where you have a number of real winners with great market share who are growing fast. The question for investors, how much do you pay for that . That is relative to what is happening in the u. S. You are also beginning to the prices come down share prices, but the rand is holding up. A lot of that will depend at on the next smartphone much. Also, the up chain stocks the apple chain stocks in taiwan. How much apples bonus well, we are more worried about that because it has already peaked, we think. David so in terms of the quick count that he, that is how you how you would measure which one is better. When do i need to start or worrying about incremental tightening coming to us as far as global liquidity is concerned. 2018, is that a 2019 or second half . Guest i think we have two Interest Rate forecast from the fed next year, a lot of people have more, we think that we will have good global liquidity for most of the year. It also depends on the pace of you reduction and the composition of it in the u. S. And how quickly the ecb decides. Moneyb will start to take from the table in generate and bring rates up in a 20, that is our forecast. Say will be six months before that richard think peoples they hang on, what is happening. Least six be at months before that that we think people will say hang on, what is happening. Quickly, bank of japan meets this week, do you think they will raise rates next year . Guest i dont think they will be any change, we think it will be a story for 2020. David thank you very much for coming in. If you are bloomberg subscriber, you can catch all of the interviews you may have missed on our interactive tv function, tv. You can join the bloomberg conversation and even send us instant messages. Tv. This is bloomberg. David this is Bloomberg Markets asia, i am david ingles. Toe is an interesting twist the plot, there is a Chinese Biotech Company that has defaulted on a loan tied to what of its Asset Management products after the deleveraging crackdown. Who isjoined by a guest here to talk about what exactly is happening here. What is the company, and how do they default . Guest thats right, as you say, this Company Makes sugar product , biotech as well, and it defaulted on a portion of a loan and a portion of the loan itself was tied to an Asset Management product. Those are the main details that we know. The Bigger Picture here is that over the years in china, particularly since Interest Rates have fallen, there has been a real hunt for yield is the has been globally. Investors andop institutions as well, so anything with a higher yield or a promise of some kind of greater return has attracted a lot of attention including these kind of Asset Management products. The industry in china is now so itabout 15 trillion, is massive and has grown very rapidly. That is roughly the size of economic output of the u. S. And china has grown that much in one year. It is huge and the authorities have gotten concerned that there are risks in the underlying assets. That is something they have spoken quite recently about trying to address. David i guess for those who are not familiar, these are products which promise a certain amount of cash flow. Everyone thought they were guaranteed until we get Something Like this. Do we have more defaults ahead . Guest with a 15 trillion market, it seems inevitable that there will be at least some risks of default out there. So people are watching closely to see where the weeks of and be. The weak spots could be. Last month, it was said that they were increasing scrutiny of the Asset Management audit industry, just one month after chinas top leadership at the Arctic Congress in october, reiterated that they really wanted to make controlling financial risk atop 30 Going Forward our top party Going Forward. If investors in the end really do lose money and are not held out, that could send a very clear signal that the government is following through and really will let failures occur. David what do you think will be the first effect across the border market . Higher yield . Guest we have not seen any indications that this is going to have much of a broader impact. The size appears to be relatively small, but if we dont the that there are no bailouts as of happens sometimes in the past, then i could have such an effect. David thank you so much, andrew. We are looking at the reopen of business in tokyo, looking at the topix Index Trading at callingst seen when me back was popular in a 1991. This is Bloomberg Markets asia. The opening in japan, if you had to pick one market, a lot of people have said that is japan. Is it getting crowded . Is there a fundamental reason . Definitely. Since been five years this abenomics rally started. To pick oneave earnings play in the asiapacific next year, that is japan. , thethe next five years cap in performance is clear. We are looking at the change going into next year for estimated eps. Japan still had a stellar earnings season and we are expecting based on these forecast that bat story will continue into 2018. This is chart 7554 on the bloomberg. Traders in tokyo headed back to their desks and sophie is here with the reopened. The topix led on lower by Consumer Staples and industrial stocks on the benchmark, but Holding Gains around about 26 year high, discretionary stocks and autoclaves leading gains for the index. Otherwise, the offset by the general drag in materials and property players as well. Elsewhere, aussie shares on a high, chinese stocks, as is the hang seng on the rise and under pressure, tech shares not , perhaps dampening appetite as of late. Some of the movers, cyber dean the best performer, the maker of medical exoskeletons eyeing its biggest gains after receiving fda approval for its robot suit. Stock has fallen every day this month, except for one day, losing 35 , but gaining almost 9 today. Laggards,n regional Retail Food Group on track for its worst year on record as it and losto a 2009 low half of its market value in seven trading sessions. Kajima on the decline after being downgraded to sell at ubs. They is the biggest drag on kospi amid talks the group is looking to buy back at stake from in bk partners. Partners. David thanks. Stocks broadly higher. Growing optimism about tax cuts in the u. S. Mark cudmore in singapore, do you think we can draw a straight toe between what does seem likely with this tax overhaul and markets . I think so. It is providing a tailwind for the positive sentiment, the christmas rally. A few weeks ago it did seem unlikely we would get tax reform passed by the end of the year. It was difficult to see the Senate Passing the bill the first time and then the some out so quickly, looking certain to get done and a real positive sentiment. We cant quibble about how much this will add to the American Economy and how bad this will be for deficits, but that is a debate for the other day. Liquidity is too low to worry about those nuances. Providing a tailwind for equities globally and helping stocks. David what is the dollar looking like now, positive, negative . My a long term negative for dollar. Dollar had a terrible 2017, a poor 2018 as well. This was the first leg of the move. Were bullishle dollar this time last year on tenuous reasons that did not seem to hold up and did not hold up. Now there has been a sentiment shift and the market is bearish the dollar. The fundamentals remain negative. We have a shortterm squeeze higher in dollar basis providing shortterm support, but real yields arent particularly rampant, growth is not there is still a current account deficit and the twin deficits will be whiter, so we are also late in the cycle, so u. S. Investors looking for higher opportunities elsewhere in the globe. We see this in every economic cycle. Funds start flowing out later in the cycle and that is negative for the dollar. David looking at dollarran flat after being on a massive tear. Can we put text behind and focus on the fundamentals of the south african economy can we politics behind and focus on the fundamentals of the south african economy . See frictiontill and corruption issues that flare up over the next year, but there has been a grounder shift in sentiment for south africa that will ea tailwind for the currency and the bonds for the year ahead. Next year investors will be focused on high real yields and high kerry offer and dominate the negative economic story. Overall, it will be a positive story. Shortterm, the rand has appreciated 12 against the dollar in the last five weeks, 6 against the dollar since last thursday, so there is a chance for profit taking in the shortterm, but next year the story looks positive test of the political tailwind, even if the economics are negative. David you can follow all of the days trading and marks work on our markets live blog at mliv. You get an ode to mifid. One click commentary and analysis from expert editors. You can find all that and what is affecting your investments right now. Lets look at first word news now with Haslinda Amin. President trump has addressed security, saying the u. S. Will a muscular Foreign Policy under America First. He warned the world that any nation that trades in prosperity for security will end up losing both. Andentioned north korea described china and russia as rivals, but potential partners. Planning to end local subsidies for electric cars and other new energy vehicles. The ministry of finance aims to phase out since and to phaseout incentives. It may be implemented in then you year. China is the biggest electric car market in the world and car markers will still be entitled to Central Government funds. The Tokyo Stock Exchange is being attacked for failing in its duty as a market referee. New Horizon Capital said it must act as arbiter of regulations it has issued in the last two years. That itzon warns assumes companies can it ignore the rules and are not legally binding. The japan Exchange Says that situation is wrong. U. K. Manufacturing has enjoyed another strong month of demand with orders staying at the highest level in three decades. The factory index remained at 17, matching the best result since 1988. Brexit negotiations face a new hurdle with the eu saying britain cannot expect a special deal, but said every deal is the fact though unique. Every trade agreement is a this spoke agreement tween the parties concerned. Various specific to the countries concerned, and that is what we will be looking for in our negotiations with the eu. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. David thank you. It is getting cold. That means bad air in china. Ordered itshas Biggest Energy exporters to cut the use of natural gas to help with shortages as winter starts and beijing has also been scrambling to secure more gas for residential use as it looks to curb pollution from burning coal. Bloomberg Energy Reporter has been tracking the story for us. The factories are even being told to reduce the consumption of gas, arent they . Yeah. It is setting its priorities for who will get the gas. It will not be enough to go around for everybody. There is not a clear statement that it will be for civil use in Residential Home heating, the top priority come a said they are telling people who make nitrogenbased fertilizers and petrochemicals, even Oil Refineries, when it comes push comes to shove and somebody has to get their gas supply reduced, it will be you. These petrochemical plants are in essence helping to pay the bill for cleaner air this winter. Incrementalis the flow of news here. What is the likely impact if any onfield markets . On fuel markets . In china limited. Chinese capacity has built up to the point where they produce more refined fuels than they though these Oil Refineries if they get the natural gas cut off, there should be enough to go around. We will see some impact in the rest of asia because china has become a big exporter of refined fuels like diesel gasoline, so those markets could get tighter and maybe raise Profit Margins for some of the other asian refineries in the region. David interesting there. Back in china, it seems as though every time we approach winter that we talk about the stories have been of chinas reliance on coal. Talk to us about the transition and then looking to move away from coal is coming along . This winter is not coming along very well. The government for years has talked a big game about making cleaner skies, and to be fair the Central Government really decided to put a lot of effort into it is sheer. They went to local governments and said we will grade you guys on your performance of getting people switched off of coal and into natural gas, and local government said yes, sir and raced to meet these demands, but they did it in a hamhanded sort of way and are telling people to destroy their coal heaters in their homes before these natural asked pipelines are connected to them. Manyswitched over some factories and homes before realizing what these supply levels were going to be that now they are running short. It is one of those things where everybody rushes to meet the and nobodym beijing really thinks through the practical implications. Itid we have to leave there. Thank you for coming on the program and fleshing out that story for us. Coming up, we will be talking , walking and economic tightrope as oil edges higher. We will be live in a few minutes to discuss that ahead of the budget announcement today. This is bloomberg. David this is Bloomberg Markets asia. Talk saudi, lets arabia, the budget deficit narrowed in 2018. This chart takes you back to the late 1960s. We are still in deficit. Was 12 , 13 , now hopefully 13 below 10 as a percentage of economic output and that is the First Time Since oil prices battered to the countrys finances. Lets bring in yousef gamal eldin life on the ground in riyadh. Help us understand what this actually means in terms of the budget announcement we are expecting later on. It is a huge event. There is no way around that. Facing theent is choice between austerity and stimulus, a choice a lot of governments have to make. Saudi arabia has been in austerity mode since 2015. The latest numbers 8. 9 of gdp, down from 13 of gdp a year earlier, in line with economists surveyed by bloomberg. The government more leeway to allow for stimulus. Bloomberg economics expects the economy to contract 1. 4 this year. The government has been trying to reinvigorate economic momentum because you had a stimulus package a couple of weeks ago to the tune of 19 billion for smaller private sector businesses, and a bigger stimulus announcement or recalibration of Reform Programs would definitely help accelerate some economic momentum, which has been lagging with the ambitious programs initiated. David you brought up the word recalibration. Does this indicate a recalibration in terms of implementing this Wider National Reform Program . They have been moving at breakneck speed. This is a bullet train of reforms, and more and more come about. A headlinebeen grabbing announcements from allowing women to drive and allowing movie theaters in the kingdom, which has not happened in decades, a huge social Reform Program, but in terms of the iter package, that stays as is an the government has made it clear it will move ahead. This country gets two thirds of its revenue from oil exports. 93 a barrel is what is needed to balance the books. Theives you a sense of predicament it finds itself in as it tries to find a balance between ambitious reforms and at the same time not killing growth and foreign interest in the saudi story. Difficultt is a balance to strike. When you look at the markets, we have been covering it this year. Asset classes have not really outperform. What are you hearing in terms of the market in 2018 . It is nothing short of remarkable. The underwhelming performance of s areties, wei some of the worst performing in the world. 2018 is the big year for saudi arabia. 2018 will likely be the year of the saudi aramco ipo, msci market inclusion possibly over the summer, which could bring in major foreign inflows. A lot to consider, but definitely a valuation that is interesting to say the least. David thank you so much. Up, we will be talking india. Too close for comfort, this election victory, but a tense moment for the Narendra Modi government. We will be live in mumbai next. This is bloomberg. David this is Bloomberg Markets asia. India are just underway, a topsyturvy session. There we go,. 5 to the upside, flat on dollarrupee. Gujarat seen as a wakeup call for the Prime Minister. Not by as much expected. Questionsting those to our next guest. Thank you for making time this morning. Before we discuss the investment implications, certainly something did change within the underlying politics here. What you think that change was . I think a couple of things have changed. Is Narendra Modis home state and he has been in power for the past 22 years. This time they come back to power, which is good for the markets, but with the diminished majority, so i guess it is a wakeup call to be on reform and policies. Rowth in the runup to elections in 2019 for india, you see a lot of this beginning to happen for modi should secure another term for himself. For modi to secure another term for himself. David what has driven the markets higher is the promise these painful reforms will be put in place and they will stand behind these painful reforms. What is it going to be . Clearly we see a return to populist policies will we see a return to populist policies, and what about the budget . We will see positive reforms. One of the reasons for the gujarat elections with the diminished majority is because the goods and services tax and the demonetization were both this relative. As that lessons and the government recognizes the tax needs to come down for businesses to move up and compete, so they are giving them some concessions. I think we will see more of this. The governments thinking is changing towards that maybe we need to cut taxes across businesses to spur growth, which is not populist, but a good thing, and that is what india needs, because the lack of job growth has held back Economic Growth as well over the last three years. David when you tie in politics and the Investment Outlook next year, will politics become disruptive . Well, there are a couple of things. Next year will see a number of elections that are important, and they will continue to set the tone into 2019. A section thats believes while it will be populist, we dont think so. Yes, there will be an element that caters to the masses and the common man. What i think they recognized as they need to be probusiness because it is businesses that create jobs come and jobs create jobs, and jobs create it is a wakeup call in gujarat to turn more probusiness. Wobblewhen i look at the this time yesterday when markets opened up there on monday, that tells me the market is almost price for perfection, and to your point, eight state elections taking place next year. At night ifeep well i have money at play in india with that on the horizon . That is an excellent point. Yes, you rightly point out that 2018 will be a very volatile year. ,here will be lots of action but now the narrative is moving very quickly towards growth, because you have tons of skilled, unemployed youth who are beginning to vote with their feet, so from that perspective i think it will be a volatile market. Fortunately the recent announcements by the government, one is a Bank Recapitalization program, and the second is a huge 100 billion infrastructure spend, will create some amount of jobs going into 2018. Understand how i in fester ground this because the indian market looks very expensive. Which part should i avoid, and which part is still worth the risk . Market is trading at about 15 times and on depressed earnings. India was growing at 30 , 35 Earnings Growth, and it has come down now to the low single digits. For an emerging market like india, inflation is also 4 or 5 . In a sense of have not grown, the market is looking kind of expensive. As earnings go up, in terms of probusiness policy, that will create Earnings Growth and you will see a lot of that happening as you go into the second half of 2018. David very quickly, if you had to pick one sector within the equity space where we will get eps growth, what would it be . I think it will be banks and infrastructure. Had the Recapitalization Program allowing them to start making loans again, and infrastructure has been in the doldrums for several years, so that is where you will see the biggest delta to earnings in the coming quarters. Itid we have to leave there. Thank you for coming on the program, very optimistic given the Election Results in gujarat. 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