Transcripts For BLOOMBERG Trending Business 20160524

Bump in the road. Has accusations of bias as a valid to change the way stories are trending. Follow me on twitter. That is my handle. Ere as use that hashtag th well. Hong kong getting underway in about 30 minutes. Singapore and Malaysia Online as we speak. Lets have a look at what is going on. Fed speaks, that is when the market reacts. That is being reflected in the early asian session. Singapore, malaysia, and taiwan coming online. Take a look at taiwan. About up we are off by. 25 . The biggest move in nine months on the account of heavy buying into some of these tech stocks. We are seeing some of those names giving back gains today. There was the story of potential demand for the new iphone coming through and the impact on the taiwanese iphone suppliers as well. Elsewhere across the region, the tradingown by. 7 as gets underway. That is weighing on exporters, consumer names, retailers. In particular, automakers and electronics names giving up gains today. Selling coming through from australia, too. Miners makingsome their way onto the biggest decliners list. Kiwi stocks off by about. 5 . A little bit of weakness coming through from southeast asia. That is to be expected. The possibility of a sooner than expected rate hike is weighing on risk appetite. Here is what we are seeing in terms of the fx. The dollar yen looking like it is holding. We have just a bit of disappointment after the meeting failing to come up with any accord when it comes to currency. We are seeing that weighing on the currency. Looking like this. Falling below the 40 a barrel mark, extending the losses that we saw in the the 48 a barrel mark, extending the losses that we saw in the earlier session. For the fed, the expectations of a sooner than expected rate hike continuing to weigh on demand for safe havens, gold. The aussie, were seeing currencies under pressure as well. Rishaad thank you. China scrapping its marketbased mechanism to manage the yuan. They did that in january. Expectations of the fed moving on rates in june. We have robin with me right now. It is not a huge surprise to the market. This is something that has been since january 4. Robin this is something that happened in the first week of january. I do not think anyone in the market globally thought there. As anything marketdriven if you remember what the pboc wherehey set the fixing they wanted it to be. They came into the market, mopped up supply as well as offshore borrowing costs. I do not think anyone thought this was marketdriven. This is something that we have flagged several times over the past months. To rs rishaad we have said on this program many times that it does seem the administration has vowed that they want Market Forces to do the work until a certain point. Does that mean that they ditched this whole idea of having marketorientated moves on the currency . Robin i think what has been happening over the past months is that the pboc seems to be following the market moves when it suits them. They have generally followed, over the past few months, the moves in the market, what investors are saying. We have seen periods where it does not. The dollar weakens too rapidly, but not as much as the dollar has strengthened. That creates a weakening against the currency Forex Trading partners, which helps them with exports. At the same time, we are still following the dollar moves. Rishaad thank you very much indeed. We will be talking to Morgan Stanley chief executive. He is saying that chinas economy will continue to grow quickly but will face, inevitably, some bumps in the transition to domestic demand as a key driver. Stephen engle caught up with him. Steve, what was on his mind here . Stephen what is on his mind is he has to host about 2000 participants at the Rosewood Hotel in beijing for the secondannual Morgan Stanley china summit. We are going to be here all day today and tomorrow, bringing you the highlights. In the last hour, we had an exclusive interview with james gorman. He mentioned the first quarter, where the return on equity was not up to their target, but he said he was quite pleased with the quarter. He said markets were trying to return starting to return to a more normal environment following the weakness in january and february. As far as brexit, he said that if it was his guest, he said that britain would not exit. He said the british have uncommon common sense. The backdrop is what the fed might or might not do on june 14 and 16th. He said he is not sure whether they will hike rates, but said the negative Interest Rate environment in europe and japan will not necessarily affect the feds decision. On china, he said there will be bumps along the way in the transition to a more domestic demand economy. These are his comments on china. Mpls are likely to rise from where they are currently. The chinese economy is a complex , enormously complicated set of things going on, moving from an exportled economy to a domestic demand economy. Moving from a savings economy to a consumption economy. All of these changes are not going to happen without some bumps. Stephen lots more coming up this morning. We will have the Morgan Stanley asian economist. Also, john rice, the vicechairman of ge. Later, carlos gutierrez, the former u. S. Commerce secretary. Nice one, steve. More from james gorman about 20 minutes from now. Do stay tuned. Lets catch up with some other stories we are watching today. Sources told bloomberg that deutsche is subject to an investigation as to whether the bank inflated the value of securities in its trading business and hid millions of dollars in losses. Cryer has another headache with moodys rating it as junk. They say they have been week for several quarters and face substantial headwinds, including low Interest Rates and Macro Economic uncertainty. Sources say the ceo of deutsches latin american operation is to leave. We are told the company is quitting the region, including argentina and mexico, and will cut half of its jobs in brazil. It is estimated to affect about 25,000 positions globally. More banks may have been hit by hackers than previously reported. An Eu Financial Services conference will help clients make system checks. 12 million was stolen from an Ecuadorian Bank in january of 2015. Haveal u. K. Letters privately been lobbying the bank of england to push cyber defense. After recent allegations of political bias in its trending stories feature, Facebook Says it is changing how it works. It will no longer require stories to appear on meeting new sites as that could the tobias. It will also stop a list of 1000 sites that were deemed untrustworthy. Earlier this month, a report claimed human editors favored stories. Facebook did an investigation and found that it could not rule out individuals. On our website, we are looking at why singapore is no longer a shoppers paradise. This hour,ater president obama making an historic trip to vietnam. We are looking at the key issues on the table. And the Market Outlook for Fidelity International and where they see the key risks over the coming months. Rishaad you are watching trending business. Asiapacific stocks down. Signs that the fed is inching closer towards a rate hike. Fidelitys Senior Investment director. Thanks for coming in. Give me a holistic view of what is going on right now. We seem to be ratcheting down. Some good news translated as bad news and some just plain bad news. We have a couple of headwinds in asia. In effect, the reversal of the tailwinds we had in the first quarter. In the first quarter, we had chinese fiscal stimulus, which was beneficial to chinese economic growth, particularly in the old economy sectors of Construction Materials and commodities. And we had the more dovish comments from janet yellen, which were generally helpful for risk assets globally. Now we have seen a reversal of both of those things. Indicate ah comments greater opportunity for a hike. And a change in emphasis from chinese leadership on the way they are running their economy. Reforms andlyside cutting rishaad is that real, though . Matthew we will see. Xi jinpeng makes it clear that that is tore they want the emphasis live. All of those things need to happen. If they do, there is an impact on growth, which is why they refer to this lshaped. Growth pattern. That means it has to decline until it gets to a level. No one knows what that is. Rishaad trusting the market until they dont. Matthew if you are referring to the currency, i think they have been clear that they want Market Forces to be the main driver. He would not expect them to typically the to completely take their hands off the wheel. They are trying to manage their currency within the trading baskets. Is strong, dollar that means their currency will generally depreciate against the u. S. Dollar. Overall, i think that is a side story. Rishaad what is the story . Is it about the asset bubbles creeping up elsewhere . Matthew there are a couple of stories. First is a shift to the de capacity, deleverage story. The second is the bubble that you refer to. The second, when you have a closed system and money, it results in serious asset bubbles popping up. We saw the equity market, the bond market, the commodities i think it goes round and round in circles. Growth. Good story is we are still seeing growth in china. Not only growth, but exceptional growth around the region. India, seven point 6 growth to the philippines, first quarter, 6. 9 growth. Even the u. S. Rishaad on the equity side, msci has got to make a decision about whether they include some of those shares in global indices. Will they or wont they . Matthew i dont know. Im not msci. Rishaad would it make a difference for you if they were included . Matthew no. 1. 2 billion deployed in the asian market. We find plenty of good, individual stock ideas that we like. It does matter to the passive Fund Industry because they need daily liquidity. They need to be able to buy and rent at the benchmark. For them, it might be a significant development. Rishaad if we get it soon. Lets go back to the positive story. That is the growth that we are seeing. India, you mentioned the investment there. Matthew we like india. It is probably the most consensus overweight market. That is the problem. If you were in before, it was consensus overweight. For a long has been time for us and continues to be because we have good growth. Rights broadly doing the things. People quibble about the pace of reform, but they do have a reform mindset. They are trying to move things in the right direction. It is a broad and deep stock market with some quality companies. Indian management has a good concept of the cost of capital. They understand how to run businesses. We find lots of really Good Companies. Rishaad philippines is another great story as well. Does that do anything for valuations here . Judge by thee market reaction, it is a positive thing. Consensus for you would be that it is not going to change anything dramatically in terms of the Reform Program that has been in place under the current administration. The story should continue. Rishaad then we go what to avoid. Is there a place you would not touch with a large pole . Any country down in the dumps will have some Good Companies. Matthew that is right. We are finding Good Companies in almost every country. The ones we like is are china, india, indonesia. We like all of those. The other ones are the ones we dont like. We are overweight the ones that i mentioned an underweight the other ones. Rishaad you did not mention thailand. Are you staying clear of that . Matthew we find good individual companies in the consumption area. Perhaps it is interesting to talk about this from a central perspective. The linking theme around asia is consumption. Have two point 5 billion people joining the middle class in asia between now and 2030, which is a huge driver of consumption. Rishaad virtually everybody. Matthew i mean, it is. Absolutely. As countries like china and india mature, the people from the bottom moved to the middle class. I think this is the great asian story. This is why i would be invested in asia. It is not about the prada handbag story. People from the country to the city are getting their first job, buying their First Electric van, their first bicycle. Rishaad getting their First Health Care package. Matthew sure. Education. Getting a smartphone. Doing transactions on the internet. That is why our Portfolio Managers are finding most of the good ideas in the services and consumption areas. Rishaad thank you so much for coming in. Matthew with a look at what has been going on across asia. 2. 5 billion people in the middle class. The investigation into Hillary Clintons use of private emails or the state Department Agents have spoken to one of her aides and her former chief of staff is already cooperating. Weeks ago, clinton said the fbi had not contacted her but said she was ready to talk at any time. Indias Prime Minister has regulated the team that congratulated a team that launched a mini space shuttle, putting a satellite in orbit. India wants to play a big role in the commercial satellite market, which was worth 200 billion in 2014. India launched its first rocket in 1963 and for satellite in 1975. Chinao be china beat to mars. Another official has been fired after an internal investigation found that he accepted millions of dollars. Sources say he took cash from 20082014. It is not yet clear what they were linked to. He may face charges of conflict of interest. This is bloomberg news. Rishaad coming up on trending business, is it the end of a love affair for a Hedge Fund Manager dumping shares of Chinese Technology companies . Rishaad this is trending business. Hedge funds are shifting away from china tech stocks on rising concerns about their growth outlook. In beijing. S tom is this the end of a love affair . Maybe not the end, but there is not a lot of sizzle in this romance. Dumped chinese textile holdings in the first quarter, down about 12 . 10 of the Biggest Holdings were in internetrelated firms. In a traveloldings company were sold off in the first quarter. You have other Tech Companies , and another, almost a third of both of those companies were sold off by hedge funds. One of the biggest holders of u. S. Listed chinese tech shares sold off 1. 1 billion in the first quarter, including these Companies Like jd. Com and alibaba. Rishaad look at that. It down 35 in just 12 months. Tom and that is despite a lot of positivity. A bit of a pickup towards the end of march. . Ishaad why this selloff everyone is talking about the new economy of china. Get out of the old economy. Move it to the new one. Tom we have seen a big selloff in u. S. Chinalisted shares. We look at the index and it is down yeartodate about 30 . Through december and february, it is down 25 . It is seeing a bit of a pickup there. Valuations are a big part of this. Some of these firms trading at 51 times their earnings, their average yearly earnings. That is a concern for investors as well. There are other opportunities. This is kind of a natural shakeout. Rishaad thank you so much for that. Enoimcs given a muchneeded boost to japans fertility rate . We are finding out in tokyo next. Rishaad picking up our top stories. A string for the yen weighing on japanese exports. Gained almost 1 , traded further. Chinaf asias tongue watches seeing further decline for the u. N. But without the chaos that came with it, the evaluation in january for that china will use verbal support to avoid spooking investors. That is a translation to domestic demand, a main driver. He told us on bloomberg that investors should stay tuned with the markets becoming more normal. Our open in hong kong. Shanghai also. Here is heidi fulls heidi. Are getting repricing of expectations. They are a bit all over the place. We will see that move in june potentially september. Chinese markets opening pretty flat when it comes to hong kong. Shanghai off i about a quarter of 1 from the open. Those gains in the early session. Elsewhere, weakness coming through from sydney. That market down about. 25 . This selloff in crude overnight. Down by about. 4 . Holding ontoyen gains for much of the session. That market had its biggest jump in nine months yesterday. Story that apple was 78 millione ordering phones from their suppliers, driving the buyer into the market yesterday. By. 5 . Own bhp seeing some upside despite selloff in iron ore for that this is what were seeing in the tokyos russian. Automakers, electronic makers seeing a downside as a result of that stronger yen. Toshiba off by over 2 . They expanded that to cut a recall takata recall. Some pressure coming through for commodities. As a result, the aussie dollar has a bit of dont slide. Gold has its longest streak of decline since midmarch. A reassessment of fed tightening expectations weighing into this demand we have seen. This rally in gold we have had seemingly coming to a stop. Finally, a quick check of the end. Not a lot of moment but Certain Movement about definitely strong, at least if you are a japanese exporter. Rishaad James Goldman says chinas economy will continue growing quickly but it face some bumps in transition. Steve spoke. Economy is the second largest economy in the world, growing apparently last year at 6. 9 . Its certainly growing at a rate faster than the rest of the world. The thirdlargest, japan, has negative growth. Fourthlargest, germany. Is slowing. Se, it china accounts for nearly global growth. An interview out with debtberg saying the problem at the banks is far worse than anyone is reporting, upwards of 22 of outstanding credit in the chinese thinking system will go nonperforming by the end of the year, meaning trillions of dollars of bailout. They had big numbers they are turning around. That is pretty obvious from where they are currently but the chinese economy is a complex, enormously complicated set of things going on. Moving from an export economy to a domestic demand economy, moving from a consumer savings economy to consumption. All of these changes will not happen without some bumps. The four big chinese banks are tremendous earnings engines at the same time. Venture which33 is the maximum allowed. Before that, you had cicc. Consider, given the complexities in this market, going it alone if they were to raise that feeling to allow you to have 100 or is a joint Venture Partnership the best way to go . I think you have to live in the world as it is. Over the long run, we always like to own and control the businesses we had around the world but in the medium term, weve often gone into markets in a joint venture type structure. You get the advantage of the local expertise. Washington securities is a Great Institution and its been a great partner. What would be your expansion or headcount plans for asia . Asia, as you know, has been on the back foot the last your or two and with rates rising, you will see further liquidity markets. T of the im not sure there is accelerated growth in asia relative to whats going on in the u. S. We are longterm buys of china and greater asia. We have a tremendous operation in the region. Morgan stanley is here to stay. Rishaad our exclusive interview with the Morgan Stanley ceo. President obama has eliminated one of the last vestiges of the the 40 yearding arms embargo on vietnam. The former enemies have been strengthening ties. David is with me now. It thing is, would it make easier for vietnam to get access to arms . David its going to make it easier for vietnam to get access to u. S. Arms but its not as if vietnam has not been able to get access to legal weapons before. It has been buying Defense Systems from russia although recently, it started sourcing those from israel. China has been buying the same rocket systems from russia and it doesnt want china to know what its capability is. It is looking in different areas. The underlying point is they will be able to access american arms but even then, it will be on a casebycase basis i wear the u. S. Can still keep a bit of leverage on the human rights issues. You listen to the noises out of beijing, they are quite subtle some of them. Some of them notsosubtle. David the reaction of the Foreign Ministry was to welcome. Relationship has been normalized and the weapons ban lifted, they have half an eye on the fact they have a weapons been going into china from the European Union and thats a been there since 10 amend square and thats been there. Rishaad there is this notion that the u. S. Should tread carefully in chinas backyard. Is the underlying message we are getting, that the was shouldnt be interfering and stirring up trouble. Youunderlying message is if start providing further weaponry to vietnam, that would be helping to stir up trouble in the region. Rishaad i guess everybody has been capturing this on social media and this is a celebrity chef of course. Obama last night shared a six dollar meal with anthony boardain. I think its cool the fact he is there but i think this is the calculation of the white house. Ofy must have had some sort agreement. This might be an attraction to Younger Voters that may be Hillary Clinton doesnt have. Who will be out campaigning for Hillary Clinton in a few weeks time . It will be obama. This restaurant will be inundated. Rishaad you can imagine. David, thank you. Worlds largest lenders could face bankruptcy following a decision by a new york appeals court. The ruling previously dismissed antitrust lawsuits against banks like jpmorgan. The judges warned that claims could lead to triple damages which could overwhelm the banks. About a dozen firms paying 9 billion. A double tax may be kicked out of results private currency club. The central bank may revert to the dealer status by the end of the month. The remaining dealers have to pick replacements by the end of may. A recall of more vehicles. The latest recall involves 1. 6 million vehicles in the u. S. , including certain models of the Toyota Corolla and lexus lines. As we all know, it is being success. With ones it seems to have slowed the pace of japans declining population. The fertility rate rose to a 22 year high. Its up for the first time in two years. Yvonne is there now. Yvonne we are seeing that fertility rate crawling back up. 1. 46. E to a woman having on average 1. 5 babies during their childbearing years. Zerois inching up about point 04 Percentage Points from the previous year. The Health Ministry thinks its a small rebound and seems to think abenomics has some thing to do with this. The economy was recovering. There was a lot of euphoria at that time in the number of inies being born, 1,005,625 2015. Interesting enough, we do see the biggest contributor to the andge our womens aged 30 34. Still reflecting this trend women are still putting off marriage and having a child until their early 30s. And interesting, small improvement we see here. On the flipside, we do see fertility rates up but we see deathsjapan has and in japan have risen. The population still shrunk some 285,000. The small rise we do see in fertility rates still failed to do this shrinking population trend we have seen. They want to raise that fertility rate to 1. 8 . Rishaad thank you. A look at the spike in fertility rate there in japan. We are talking to jp Morgan Stanleys asia executive. Just coming up ahead on bloomberg. It is 9 45 in hong kong. These are the stories making headlines around the world. An ejection aviation official flight 804 did not lose out the two door slow suddenly before his disappearance. That undertakes the Greek Defense minister. Egypts Civil Aviation Ministry Says the same plane made an Emergency Landing in 2013 after an engine overheated. Ships and planes from 13 countries are searching for debris and the data and voice recorders. The second of six policemen charge over the death of freddie gray has been acquitted. The judge said the officer played little no debt and s debt. Last year, a jury failed to reach a verdict in a manslaughter case. Another officer will be tried next month for seconddegree murder. A lawyer for Joaquin El Chapo guzman says he may not need extradition to the u. S. If a deal is reached. He initially said he would fight extradition to the u. S. Howard by over 2400 journalists in 150 news bureaus around the news. This is Bloomberg Rishaad Monetary Policy losing its punch. China to chew over at the summit in beijing. This is being held here in they slowing chinese economy is paramount to many of the participants. Some 2000 participants, i might add. The Second Annual gathering for Morgan Stanley in china. Of course, the g7 meeting and the fed telegraphing their possible rate to move coming up next year. Lots to chew on and that is why just,l bring in our next Morgan Stanleys chief asia economist. Thank you so much. Policymakershink around the world have left in their quiver given we have negative rates in japan, negative and parts of europe, possible hiking in the u. S. But still a deflationary trend in emerging markets. With Monetary Policy effectiveness waning across the world, we need a transition to ourulate demand to easing fiscal policy. With the rising yen, is that chilling abenomics . Its a part of the problem but essentially what we need is demand to the extent we can get that that Inflation Expectation. We think that the next step is to take off fiscal easing. One of the things japan has not done is to have fiscal and Monetary Policy operating in tandem. Weve either had in the first , real Interest Rates or high. That the ideal outcome will be for japan to have fiscal easing along with these low levels of Interest Rates and that is where we will be able to see Inflation Expectation turning back. Right now, the private sector momentum in japan is slowing down and we think the key reason this happened is because the implemented fiscal tightening. A fiscalstep is easing. How about the fed . Will they, should they come and what is the impact . There is a possibility they hike in september but we dont think they can hike in june grexitefore the it decision. Will that be a continued gift to a country like china which has kind of positive the outflow and the depreciation pressures . We never thought they said could go too far without considering whats going on in china so i think it does give that leverage to china to continue with his monetary easing and run this policy supporting growth. The whole idea about china in terms of letting the Exchange Rate go was to gain the military Monetary Policy. Chu paintinglene a dire picture of the Banking System in china. She says 22 of all outstanding credit in the chinese Banking System will be nonperforming by the end of the year, requiring trillions of dollars worth of bailout from the Banking System. Do you see that scenario possibly unfolding . We do recognize the ratio is higher than what 1. 57 is what is reported. I think they will accelerate the recognition but i think the bigger question is does it mean there will be a dickstein big financial shock . We think they will manage this in a way they did in the 1990s, that they will not take up recognition on nonperforming loans because that will be a financial shock. They dont want any kind of financial shock and they will try to manage this. Kickct they can afford to the can down the road, cant they for now . Macroterms of the variables, they have the control to manage this in a slow manner, the most important to being preventing a liquidity shock that causes the financial shock. The second thing is aggressive recognition on nonperforming loans. Up either of take these options, which will give them control to manage the cycle in a slow manner. I wish we could go on. Next im, ok . Thank you so much. So much more coming up. Two the big interviews right here exclusively at the Morgan Stanley china summit. Rishaad up next, facebook the wayt will change the newsfeed works. We are going to give you the reason why and what they are doing exactly. Trending business back in a couple minutes. Rishaad facebook going to accusations of political bias decides new how it stories are trending. At why its such a big deal. Facebook is increasingly becoming the primary source of five billion1. 6 users. Any sign of bias is a threat to facebooks brand and the values they stand for as an open platform for exchange. The impact of this on facebooks business is unclear. Some sources telling me theres no such thing as bad publicity. A lot of people who didnt know what the trending news topics were before, they make it out of their daily routine. Accused ofey were liberal bias. Is this what everyone is responding to . This all started from when gizmodo cited a few anonymous insiders are saying their editors had a lot of liberal biases. That means they were may be artificially injecting some stories into it. Then they had a u. S. Republican andtor ask for an inquiry facebook just finished conducting a two week investigation. Rishaad tell me something here, they did say they had this investigation taking place. What did they find . Facebook isnt necessarily valid down for battling down. They say they didnt find any evidence of systemic biases but cant rule out the potential that there may have been isolated incidents. Individual editors. They cant necessarily prove that and now you see zuckerberg trying hard, meeting with these conservative figures to try to address their concerns and responding actively to the allegation. Rishaad thank you very much. A look at facebook as a tries to cope. These accusations of bias on its trending news. We will take it to a very short break. On the other side, a look at what is going on with how people are coping with the slide. One of asias top u. N. Watches. What investors can do to limit the fallout from the currency dip. That is next. From our studios in new york city this is charlie rose. Charlie rose morley safer, a friend and a longtime colleague died on thursday at his home in manhattan. The cause of death was pneumonia. He was 84. Safer was the longestserving correspondent in 60 minutes history. For five decades he produced 919 reports. He traveled more than 200,000 miles a year. He exposed fraud and investigated crime. He chronicled a time of change in america