Transcripts For BLOOMBERG Trending Business 20160628

Not as strong as it was. And the big loser, leading investor in the u. K. His Flagship Company taking o big hit in the last two days. Follow me on twitter. Trending business. We have taiwan, singapore, kuala lumpur coming online. This is the storm after yesterdays calm. David that is what we are seeing. Asia is rejoining the global south. Cell. This is what we are seeing across the asiapacific. Trade down over 1 , the is short in equities. Highyield inil, currencies. If you go long on gold, you go on sovereign bonds. One hour in, we are looking at over 100 billion in market caps, since the open in tokyo. As far as the biggest decliners, take your pick. We are watching financials very closely, following the cell off selloff. Lets look at the damage across different sectors of financials. We had a line coming through on the terminal. You look at the prices from we are looking at the cost to ensure. Off a couple of basis points depending on which country are looking at. That adds to the complexity of the issue, when you have credit risk on the way up. Of course, banks will get sold off quite heavily. That is what we are seeing at the moment. Have a look at the bond yields closer and closer. This is zero for some. Brothers like japan, deeper into the negative. 21 underneath zero here on the japanese 10 year bond. We have a graphic of that show you everything from 10, 20, and 30 years. Some record lows there. Rishaad thank you for that. Now Britains Brexit blues are deepening with the credit being cut by two margaret credit two more true credit agencies. The ratings agencies are not impressed. Rosalind they are not. The s P Global Ratings cut the and credit by two levels, another by one, both of those have negative outlooks on the u. K. The s P Global Ratings chief explains why they made that move. The main reason is out of the reassessment of the institutions and addictive ability and effectiveness of governance in the united kingdom. We have a negative outlook continued on the rating, because the risks continue beyond what we have seen. Rosalind he also said we do not think the institutional strength of the u. K. Is what we have been seeing so far. The negative outlook looks at risk to economic prospects, and the pound, and the risk of a possible breakup of the u. K. , if scotland calls another independence referendum, which could be possible. Andheightened uncertainty diminished confidence, lower spending, weaker growth, and the predictability of policy and effectiveness of policymaker could be policymaking could be diminished. Cut byt g7 country to be a Credit Rating was italy in 2012. That was when there was a mounting euro debt crisis. Rishaad some of the worlds richest people have taken a hit. One of them is heavily invested in britain. Rosalind he is. His company, c. K. Hutchinson, which is one of the two he has, is at 30 and percent 37 earnings, according to last years results. His means he does take profits from the u. K. Months ago, he said he would scale back investments in the u. K. If they were to vote to leave. He wind breadth it would be negative not just for the u. K. , but for the entirety of europe. Some of his companies in the u. K. Include phone service, electricity, rail, gas, and other Infrastructure Companies as well. They quite heavily exposed to the u. K. The issues his companies would face, include fundamentals like growth, given the weaker outlook for the country as a whole, but also currency. Being negative forprofits. Every town time the pound moves 1 , the earnings would move 0. 5 in the same direction. Seen 31 year lows, so we can only speculate what that would mean for c. K. Hutchinson. As a whole, analysts remain mostly bullish on the company. Rishaad thank you for that. That is rosalind chin. Just some news out of south korea at the moment. The government, talking about a about 10t, a figure of or 20 more. That is from the south korean president ial office. That is what we have at the moment. We will bring you details next. This is what we have right now. The stimulus, a fiscal stimulus package. Lets go back to tianjin. Of rlds largest maker thank you for joining us. We are all reeling from what happened on thursday, that vote. The outcome being known on friday. What is your take . Of course, the brexit is the will of the people in great britain. Is a fact, defaulting was there. And the departure of the European Union is in effect. Is, did the british people really want to leave the eu, or by the british people concerned about immigration, the economy, their distance to down government in london, or the governance in brussels . Amazed that the latter one, the concerns are stronger, in defaulting, that they wanted to depart from the eu. To be honest, that concern is a broader concern then only in great britain. That concern is also in the netherlands, france, and germany. I think we should learn from this to address those concerns, and not to have those protests resulting into a weaker European Union, but to address those protests into a stronger European Union. Rishaad indeed. What about the corporate europe . What about Companies Like you . How do you prepare for Something Like this, if we end up with britain doesnt get treatment where they have access to the signal market . What does it mean to you . Well, for royal dsm, notice i dont think it will influence so much our results. We had big manufacturing in the u. K. , which may become even more competitive, ironically. The u. K. Is not a huge market for us. I dont see a big Financial Impact for us on the shortterm. In the longer term, the importance is what i already mentioned. How strong will the European Union remain . And that is something i think we should address. I think we should not look too much into the Exchange Rate right now, or the movements of shares. I know it is all huge and devastating, and all that stuff, but this is not the fundamental thing. This is a shortterm reaction, and maybe an overreaction, if i look at how the results really will be impacted in the shortterm. Negotiation,ears to get the exit really prepared. Maybe we see an overreaction at this moment in the Stock Exchange and Exchange Rates, etc. Maybe we see an under reaction and how we, as political leaders and business leaders, are dealing with the underlying concerns of the People Living in europe and living in great britain. Rishaad of course, you are in china, and i think you have some expansions going on. That is underlining your faith in the chinese economy and it declining prices amid declining prices. But i suppose the chinese also become richer, but they also want to be healthier. There must be a huge opportunity for you. You are totally right. Not, there is more in the world than the brexit. There is more amongst other citizens, like here in china. The fundamentals in china, to be honest, ive pretty good. There is an ongoing urbanization of people from rural areas into the cities, coming across and spending their money. But also, the infrastructure and hardware and software, and airports and roads in china is very strong. But also software, and people. More than 2 Million People come from technical universities every year. The demands are staying for the middle class. If the infrastructure is there, then i see a future in china looks interesting. A little bit lower growth rate 6 , theore, but about second largest economy in the world. I think we will be very jealous about that in europe. Rishaad yes, i think that would be great for europe as well. Tell us about the motion of the circular economy. China seems to be getting more serious about environmental measures that need to be undertaken. Tommy something about what the circular economy is you have been referring to, and how it impacts your business. The circle economy is simply that the movement, linear and processtake it it into products, and throw away a more cyclical system of recycling. Recycling in the oldfashioned but being able to recycle the materials. China is really embracing the concept. This is because china realizes they need to address climate change. They need to address the pollution, in order to continue to grow. This topic is high on the agenda in china. Responsibility, and also responsibility for their own continued growth. Year, there will most likely be a nationwide prize from carbon. They tried to learn from the eu, but not extremely effective. China is trying to catch up on those things. It is very interesting to see how a country like china, which we consider as a polluting country, is going to address those issues and trying to take care of them. Rishaad we did not get a chance to talk about the results, and what the main themes were, of course which is brexit, but there is also a lot more that you alluded to. The chief executive joining us from tengion. Joining us on the show, has the effects reached asias Property Market . Theondon, discussing outlook. Next, how shanghais reign as chinas top Stock Exchange may be about to come to an end. That is all ahead. Rishaad the reign of the shanghai Stock Exchange as chinas premier trading equity may be coming to an end. Heidi has the story in the charts. Forthe reversal of fortunes shanghai . Reporter i guess it is part of the ongoing story, ever since the arrival and fall of the Chinese Markets last year. 86 over in shanghai is down from the alltime highs we had last year, down to essentially these this subdued level. For the first time in a decade, there is a new leader in town. The market is about 12 years old. Theyre handling about 27 billion of trade. Why the change in appetite . New economy. Has new drivers of growth for the chinese economy as it rebalance is rebalance is. These stocks are also more volatile. That is something we know attracts speculators, continuing to dominate the chinese market. The state has been intervening every now and then to keep things stable leading up to mst i, since the route we saw last summer. Rishaad so the chinese are finally getting an appetite for somatic investing. What are the interesting Industry Groups garnering the most interest here . Reporter you want to bring this up on your bloomberg at home, we have a list of the stocks doing very well. This is one example of how well these stocks are doing. Beijing seven electronics, youve never heard of it. Big as now twice as icbc, the state banking behemoth. This stock is up almost 70 year to date. Compare that from the start of may even, or the shanghai comp, which has been moving sideways. This is an indicator of where we can see the most enthusiasm. There is a lithium car battery maker, up over 130 this year. Companiesse sorts of and compelling growth stories dominating, given the Broader Market is falling. The other thing is we are anticipating at some stage in the next few months, that the hong kong stocks will come through for investors and we look at more access. Rishaad thank you. Weve got this trend in place at , weaker and weaker every moment morning. This has been since the brexit situation. Sinces the weakest december 2010. Yesterday. D 6. 6375 this is the weakest since december of 2010, so we have just over five years ago. Lets take you to the other stories we are watching. Whats going on with the motor industry. Volkswagens bill for the admissions cheating scandal jumped by 50 . File is set later today in san francisco. Under the deal, they will set aside 10 billion to cover costs, including buying back vehicles from owners at prescandal values, and aspensating drivers as much 10,000 each. In addition, volkswagen will pay 2. 7 billion in fines going to the u. S. Environmental protection protection agency, and the california resource board. Their shares plunged 6 in german trade on monday. They are down almost 16 year to date. The number of deaths linked to the airbags may rise to 15. The latest victim is a malaysian lemon, the third fatality in the country in three months she was driving a. 2005 honda, which was included in a recount notice a year ago but had not been fixed. Withthan 100 million cars these airbags are involved in a global recall, and the shares are down close to 5. 5 in tokyo. Up, the Global Institute saying chinas Old Industries are finished. What is the future now . This is trending business. Rishaad you are watching trending business. We take a look at the mckinsey, saying brexit causes another challenge in china as more companies are investing overseas. The director of the director of mckinsey Global Institute says this in another opportunity for the private sector to play another role in boosting productivity at home. I think china in general things of the world as still kind of a dangerous place. There is a high concern about risk, and how to manage risk, and this is the big challenge for Chinese Companies that they globalize, had to be better at understanding risk, and being resilient to it. But at the end of the day, china doesnt really have a choice. It was called the opening to the outside world for a reason. It brought in technology, brings in management, and enables china to become more print productive. Situation, itit raises the uncertainty. This is the moment for the private sector to step up. The private sector can only step up if it is given the space. You have debt market opening and competition. You have to have Capital Market reform. Also, the private sector has to find the leadership and the this. Will to do we need more Great Stories from Chinese Companies in china and globally. Reporter also, the advantage the private companies had is access to private capital and lending. Thats right. Theres clearly a barrier. Lets not kid ourselves. The private sector economy is already growing really quickly. Over 60 of employees are working from private sector companies, so somehow they are getting the money. They just need more of it, at market rates, and at a way that is transparent that encourages higher production and profitability. Stephen and theres already a two speed economy. You see it in the industries outpacing Traditional Industries, but the Traditional Industries hire a lot of people. That is the Political Risk here. Of that new employment, that will have to come out of the new economy. The old economy is done. It no more new construction jobs there are no more new steel jobs. These are old jobs, and there will be fewer of them. But if you look at where the is . Y job for a migrant it is express delivery. Thats what he does. Rishaad Stephen Engle talking to the director of the mckinsey Global Institute. Now ubs is telling clients to stay liquid, warning of deeper losses in u. S. Credit on the. Eels of the, Brexit Morgan stanley recommending patients, saying the bonds are not cheap enough to warrant risk that market volatility isnt temporary. Similar advice, saying the british boat has increased the likelihood of a recession in the u. S. To 34 . Lets tell you what we have coming up. It is all on the line, or all online. Appfavorite messaging at should announce the ipo price. What could be the biggest tech opening of the year. Plus, the opening numbers next. Get ready for the rio Olympic Games by switching to xfinity x1. Show me gymnastics. X1 lets you search by sport, watch nbcs highlights and catch every live event on your tv with nbc sports live extra. Im getting ready. Are you . X1 will change the way you experience nbcuniversals coverage of the rio Olympic Games. Call or go online today to switch to x1. You guys be good[ bark ] ill [ bark ]later bye. See ya pal. Ever wonder what your pets do when you leave home . [ laughing ] aw you cutie pie. Aw. Aw. Aw. Aw. [ barking ] [ washing machine running ] partys on know what your pets are up to with xfinity home. Xfinity. The future of awesome. See the secret life of pets, in theaters july 8th. Look at our top stories asian stocks retreating after brings the partner from the eu. Further central bank intervention. The topic with the yen going in the 101 range. Sinhinzo abe will speak later. 20r the announcement of trillion in fiscal policies, it includes 10 filling dollars of extra budget which is why we and money will help Corporate Restructuring in the country. The fallout from the vote is hitting hong kong hard. 8 , one ofre than the biggest losers in the hang of the biggestne investors in the u. K. And the plunge and the pound is not helping. It is manila today. We have all of these. China and hong kong at the moment are down. David . David the overall tide is looking a little better. It is thanks to what we are seeing in south korea. Japan also off session lows. Kashing really taking a big hit. It is at 2. 6 . Moment istock at the higher than hong kong out of the hang seng. Lets talk more about this news out of south korea because you are seeing a Market Reaction both in the currency and equity markets. Were seen strength coming through when it comes to the south korean. We are seeing some strengths on a day where money is getting into the japanese yen. Trillion,king at 20 half of which will be coming from a supplementary budget that roughly, just over 16 billion. Tpppared to the economy, p bases, roughly 1 of gdp. It is not a lot in the greater scheme of things, but that is playing out across currency markets. Look at that now. 19. 29. That is a two day chart. A big pop for equities and south korea. The other big news, coming out of the cboc. Trading at 665 for the onshore rates. We are looking at the weakest fixings since december of 2010. Usuald you are seeing the adjustment lower on dollar cny from that level at 6509. Go back toy, lets reversing its earlier losses. You rarely see that over the course of two years. We are still trading near the lows. The other big market story something to watch closely. Bond yields continuing to push lower. South korea, that should be a record low at 1. 8 . Rishaad absolutely. It has cut its forecast for growth for this year. They have done it once. The south korean government saying in 2016 the economy will see growth of 2. 8 . The forecast was for 3. 1 . Looking what they are doing for inflation, from a noninflationary background which is 1. 5 . They have cut that forecast now on the cpi to 1. 1 as well. That is what we got at the moment. That is how it is playing out in the bond market as we heard from david. It is playing out when it comes to the equity markets which has turned positive but that this is the extra stimulus. 1 trillion as the fiscal stimulus package, including a next her 10 trillion an extra 10 trillion. Lets have a look at the company news. Lets see what they are doing. Up by nearly 4 . Under pressure, its 3 billion bid got a wall of shareholder criticism. They are accused of trying to do the deal on the cheap. Our Bloomberg Asia cars editor joins us now. What do the critics actually want . Right, we spoke with a fund out of the u. S. , arga investment management, and we also looked at a report from Institutional Shareholder Services which advises shareholders on how to vote at general meetings, the annual meetings for the companies. They are not so much opposed to this deal happening so much as the terms are being done. They are accusing toyota of coming in on the cheap. Toyotal values that shares at a ratio of 0. 26 share daihatsu share, that is a ratio that is low for the past five years where you have seen them trade higher than that. Foralues daihatsu cheaply then suzuki which is its closest competitor in japans minicar market and has exposure to overseas market that is up and coming in the case of suzuki. You have daihatsu, india and indonesia. You have a situation where the deal makes sense on paper but it is a matter of toyota being accused of swooping in opportunistically and paying minority shareholders less than they ought to. Ok, under scrutiny as well. It seems to be becoming more and more messy. Craig absolutely. With daihatsu, you have a situation where the lone director that the Company Claims is independent, his law firm is affiliated with daihatsu. They get paid by them for legal services. Anyou ask iss, if you ask outside analyst like Jefferies Group which has analysts that do a lot of work in Corporate Governance in japan, they will tell you this is not really a text look definition of an independent director. You have a situation where many of the directors actually have a background in toyota. You kind of have directors were looking out for the interests of toyota as opposed to daihatsu shareholders in this case. Rishaad thank you very much. We will have a look at what is going on elsewhere in japan. The most popular messaging have a says it will range for its ipo on tuesday. This is the post brexit market turmoil. We will go back to tokyo. The timing went from bad to worse. Any chance to postpone pricing, giving the turmoil we have seen. A repricing taking place not just when it comes to equities but also the currency markets. That is right. The question on everyones minds after line was planning to go public in 2014, the source who alerted us to the delay of the price range announcement yesterday has told us the ipo is still on track. The company is getting quite a bit of interest from investors. But, while the Financial Market may be in turmoil, one thing that has not changed for line is the fact it has facebook knocking on his door in asia. The timing may be now or never. Rishaad right, the thing is line is looking at how much money. Why do they need it . Pavel they are looking to raise 113 billion yen which is quite a bit less than at one trillion they would have gotten in 2014. The company is looking to expand in asia. They have about 218 monthly active users but most are in asia, japan and taiwan. That number is dwarfed by softbanks whatsapp with one thaton users and wechat is trying to expand in the same market. Rishaad thank you very much, pavel. Looking for that ipo fixing as well as the price range and looking at that as it tries to float on the market. Quickly checking on other stories the new york Stock Exchange roaring into the 21st century. Using cell phones on the Trading Floor for the first time. It does follow Communications Breakdown on friday when land lines went dead during the vote in the u. K. Nyc says the brokers can use their own mobiles only when land lines are not working. Cboc reports saying chinese banks will be able to maintain relatively high levels of capital even if they are hit by severe shock. The capital adequacy ratio went from 13 to 11 . The worstcase scenario of gdp growth at 4 . Chinas banks have strong ability to deal with Macro Economic shocks and maintain stable operations. Buyralias group looks to assets from the u. S. Drugmaker. It seeks to close a deal with allergen. It plans to use the purchase through Capital Raising with four year earnings in 2017. Shares are in a trading hold. Falling. Of insuring is it uses cast from rising commodity prices. We will go over to sydney because paul allen is there. Rio has been digging into the pile of debt, hasnt it . Paul that is right. Commodity prices have been playing ball, allowing rio to attack this. They bought back 3 billion worth of bonds this month which follows repurchases of 1. 5 billion combined in april and may. Take a look at this chart. The cost of insuring rios debt falling by 33 basis points, down to 165 basis points and that is the biggest decline of the 25 members of the itraxx index. Rios stock was off very slightly when you consider the border complex. As we know, there is bigger macro at play rather than debt reduction. Rishaad yes. The outgoing ceo promised shareholders that rio tinto would be like an atm. The incoming ceo looks like he has interesting ideas. Paul he does. I think sam welsch was referring to the progressive dividend policy which was back in february amidst falling prices. The incoming ceo takes over in july. It looks like he will be charting a different course. On monday, they will be raising their exploration budget by 25 to 900 million. He looks like he wants to usher in a new growth phase when he takes over in july. Announced rio tinto they will be reorganizing their assets, their four main product groups and plenty of speculation around the market at the moment about how it will be spun off. Rishaad thank you very much, paul allen. Still ahead, london calling. Our next guest talks about british economy remaining attractive for investors despite leaving the European Union. That is coming up. These of the latest first word headlines. Donald trump has hired a new Communications Advisor as an attempt to professionalize his Controversial White House campaign. A has taken on james miller, senior Communications Advisor for ted cruz during his run. He will take over the lead role and interaction with the news media. Vietnam and china have signed a range of agreements as they try to repair relations. Sea. Es in the south China Vietnam has condemned chinas pretested waters. Thailands Prime Minister says he will not quit even if voters reject the proposed new constitution at an august referendum. He was asked if he would follow David Camerons lead if it is not approved. He said he sets his own rules. Has repeatedly a timetable for elections. Global news 24 hours a day powered by more than 26 journalists in more than 120 countries. This is bloomberg. Rishaad getting our news out of japan at the moment. The Prime Minister shinzo abe says his finance minister needs to cooperate. Also the need to look closely at the effect of this british vote, the brexit, on the economy in japan. Markets have calmed to some extent of the outlook is unclear around the world right now. Those with a comments coming from shinzo abe. He says he is concerned about risks. You have the yen but if you look at it against sterling, it is down sterling is down against the yen to the magnitude of over 30 . That of course is something which we are looking at now because what we have right now is a sway that these currencies in this part of the world appreciate against the pound and sterling takes a hit from the brexit vote. Britain is abroad, taking trust on 26 on friday on fears that businesses will be moving out of the country. Property remains attractive for foreign investors. The head of research for cbi in the region joins us. This means London Property is very much cheaper in yen terms and a swath of asian currency terms but is that enough to go and buy in the british capital . Think after the result of brexit, investors are looking to see some going to london. I think most of asian investors will take a wait and see approach. The reason is we want to see more clarity in terms of how the u. K. Negotiates with europe. Everyone is saying u. K. Is a volatile commercial real estate market. It is relatively attractive because of transparency, legal framework. If you buy those particularly for offices in central london, they tend to be long when it comes to leases. A positive future for asian investors. Rishaad you can talk about the framework, various types of framework which support the case, but if you have Companies Moving out of london, well, the thing is that will leave you with a hole in your pocket ultimately. Henry i think that is the case. Initial studies, two sectors in london are probably the most exposed in terms of the brexit. Number one is the Financial Sector. We hear about the Financial Sector moving out of london. We have not seen that yet. Number two is the tech sector is potentially more exposed because they have two have to have upscale immigrants. When you look at the yen appreciate the dollar, the yuan appreciate against the sterling, both of the currency movements gives more asian investors a catalyst to look into u. K. Market because a lot of markets in our region tend to be relatively pricey and expensive. We saw depreciation in sterling, which makes a london return attractive. Rishaad what is better than commercial or residential . Henry i think commercial. Rishaad why . Henry, why commercial over residential . Henry i think commercial markets, if you look at the offices, for the London Office market, it is quite diversified. Banking ande Financial Sectors. The offer is not always negative. Market, donttail forget about Retail Market is very positive because of that. The sterling has been depreciated. A lot of tourists arrive to the u. K. To do shopping. When you look at the logistic market, i think it is interesting because the u. K. Ecommerce is going through structural changes. Ecommerce is more and more growing for the u. K. Market. The logistic market actually is solid there. Among those three, it is a positive story. Rishaad henry, lets have a look at what is going on with the property in this part of the world. Lets start where you are with singapore having some terrible declines at the moment. I cannot believe we have seen singapore with topfive decreases. This will all about to be change because i think the recovery was expected in 2018. Henry yes, that is interesting. You are thinking about the office market, the Singapore Office market has spen speculative supply coming to the market. Over the past 20 years, the market tends 10 to the one of the most volatile markets. We are forecasting 2018 for the recovery, but with increasing activities, it is doing well. I think we will look at the earlier recovery in the second half of 2016. If you look at the capital, they are looking for space in the park. Given the uncertainties for the u. K. Approach, it is a wait and see approach. The euro is a question mark. A lot of capitals within our region are looking for safe havens. Singapore is one of the volatile speculative markets and investors will look for opportunities. The a quick question chinese Property Market, housing especially has stabilized in your view . Henry yes, initially we forecasted 2 to 3 with a ratio in the beginning of the year with growth. Now we are forecasting 5 to 8 for 2016. The tiertwo market as well. Rishaad great to talk to you. Ehrhenry in singapore. Hopes topore airlines take on newcomers as a regulator relaxes the rules. That is next. Rishaad welcome back. India in the process of relaxing the Aviation Industry rules. One airline is planning to spread its wings. Lets bring in our Global Business editor, sam. Theindian market is one of fastest and aviation arguably. That makes it hugely important. Sam yes. Numbers say traffic and india grew in india grew four times the u. S. It is responsible for Singapore Airlines to spread its wings in india. It had a very long history. In the mid1990s, they tried to set up a joint venture. There were plenty of hurdles. This is the second attempt. They have been flying these domestic flights for about a year now. Rishaad they have tried to get in there but this might change. Sam yes. In the sense gulf carriers have been squeezing them. For Singapore Airlines it is hard to grow market in india. They have joint ventures. Rishaad what are the prospects . All are in the same boat. Air ratio has been lobbying. He wants to fly overseas as well so he sees benefit. That they have 11 planes in the fleet right now and they will have 20 by june 2018. Rishaad out of time. Thank you. Ok, lets have a look at what is coming up in the next half of the show. Bitcoin backing the trend. We look at that and more. Announcer from our studios in new york city, this is charlie rose. Charlie thursdays vote was preceded by two months of intense debate. The leave campaign won by 52 . The decision sent shockwaves across europe and around the world. The british pound fell to a 30year low. It momentarily dropped. Prime minister david cameron