tv Asia Edge Bloomberg January 31, 2016 10:00pm-11:01pm EST
kong and why it might not be business as usual. angie: year of the monkeys around the corner. also coming up, looking sharp. the embattled electronics maker confirms it has received advances from two suitors. kyi will decide who is president as her nld takes charge in the first democratic parliament in decades. a new leader in vietnam, too. all that and much more in this monday in addition of "asia edge ." changes investors are just into is the boj. to is the boj. off 1.9%, but we are
looking at a fourth day of gains led by japan. this move from the boj is continuing to drive the yen's value. and euro-yen are back to levels from last christmas. another group benefiting from this introduction of a tax on excess reserves in japan is yields at the moment. if you thought they could not get any lower, think again. watching warnings of impending collapse in the debt market. -.12 percent.
there were a long list of profit warnings out of chinese companies. it underscores a need for more policy action and explains why, despite the rally we are seeing across the equities space, we are seeing pressure on cyclical commodities. oil is on the way down. copper is also on the way down. before i go, does this rally have legs? the dow jones all turned lower this morning, so maybe not. whereone of those days you look at that and strip out everything out. china's manufacturing figures securing -- signaling growth may be losing stream. it is a record streak and deterioration. man has been taking a
look at this. services has been holding up, but we have one financial institution saying, even then, be careful. look at the drop in employment. yvonne: they are holding up, but it looks like the widening of a two-speed economy. sawooks like the pickup we in december, whether it be in manufacturing or services, may be just temporary. 49.4, below estimates. we have not seen six straight months of contractions ever. manufacturing, 11 straight months below 50. 48.4, still above estimates. ated, pointing to weak domestic demand. external demand is very fragile. new export demand contracted at a faster rate.
another big loss of 18.5% on year. they are very closely tied with chinese exports. on the manufacturing side, there is a slight "off" from the high we have seen. 53.5,gure coming in at still pointing to expansion in services, which accounts for more than half of the chinese economy. rishaad: i guess it is down to the policymakers. what are they doing here? do they add more stimulus to the pile and come out with more growth supporting measures? like thet looks measures we saw last year led to stabilization, but that may not be sustainable for 2016. economists are starting to say that what they are expecting out insufficient in boosting real investment, the downward trend in investing, as
well as boosting infrastructure. the core focus needs to shift from monastery -- monetary to fiscal policy. bloomberg economists are saying that the government will likely have to raise its fiscal target deficit to 3% of gdp, and they are calling for two rate cuts in the first half of 2016. oure: we have been asking guests this morning for their take on china following the release of those figures. agrees that at ihs it highlights the growing divide between manufacturing and services. the basic picture is unchanged. china is a two-speed economy. manufacturing is going through tremendous stress. we are seeing readings that indicate contraction, or slowing pace of growth in industrial production, which is very much the story throughout 2015. i think we will see that in 2016
as well. hsbc's julia wang believes the chinese economy could be doing more to drive growth. >> measured using combined with more flexibility would make it easier for the pboc to deliver. i think this is a viable option, but at this point in time, for it to be nondestructive to growth might be tricky. it is not really the answer to the economic problem we have in china. it probably helps the margin, but it is not the solution. the solution is more fiscal expansion, commitment to turning mored the housing market, infrastructure investment, and more tax cuts to the corporate sector. angie: chris weston does not expect significant moves from the pboc ahead of the lunar new year. >> i struggle to believe they will do anything outrageous at of the new year. are they going to be more along the lines of bank of japan and hold the element of surprise? perhaps.
they are a central bank, which can surprise, unlike the federal reserve or rba. , -- asee eight evaluation tion, i do not think the market is prepared for that. angie: that was the word from asia on china. rishaad: swiss investor-gate. theering questions about swiss bank accounts of former malaysian officials. prosecutors say there are "serious indications" that $4 billion was misappropriated from malaysian state companies. steel climbingin after speculation of a takeover from nippon. 8% stake in nis
shin. steel producers are under increasing pressure to consolidate during a supply glut. barclays will pay a 70 million dollar penalty ended midterm misleading investors in violating security laws in its dark pool. will pay $84 million and is not expected to admit wrongdoing. the security exchange commission has been investigating whether banks disclosed enough to client about trading in dark pools. at more on that bloomberg.com. find in-depth reports and market data. ♪ biggest bank plans to impose a global freeze on pay and hiring this year, joining the ranks of european lenders
that have announced cost-cutting measures in the last few months. let's get the details with ros. is a bleary monday and not just whether. hsbc saying pay and hiring is frozen to reach cuts of $5 billion by the end of next year, 2017. ceo stuart gulliver has been trying to improve earnings. back in june, the bank announced a three-year plan. cutting 10%plan was of its workforce, about 22,000 1020 5000 workers. to 25,000 workers. it sold operations in brazil and is trying to sell business in turkey. people familiar with the markets have told bloomberg is looking
at its business in lebanon and may exit and closing private banking in india. angie: cost cuts seem to be a theme this year. rosalind: and overhaul and many banks. the u.s. as well. jobsche is cutting 9000 your marked for 2018. earmarked for 2018. well, to focuss more on wealth management. so banks all over are coming under a bit of a squeeze because of increasing pressure from demands,s, regulatory and increasing cost of compliance. angie: thanks. touristscoming up,
shery: these are the story making headlines around the world. pilot error is being blamed for the crash of a trans-asia plane nine months ago. a failure toay follow safety procedures led to the crash which killed 40 people. the plane was too low, the pilot was probably overconfident, and the first officer did not correct him. seven months later, another trans asia plane crashed in taipei when the wrong engine was shut down.
close towarship sailed an island claimed by china, passing within 12 miles of triton island, part of a chain claimed by vietnam and taiwan. the pentagon says the u.s. will sail anywhere international law allows. beijing says move was unprofessional and a deliberate provocation. the annual lunar new year travel rush is underway with almost 3 billion trips expected in china alone. train and bus stations were packed over the weekend. the transport ministry forecasts travel around next week. this year's crush may be less than usual because of the slowing economy. the spring festival two years ago saw 3.5 billion trips in china. powered by over 2400 journalists in the 150 bureaus around the
world, this is bloomberg news. angie: the bank of japan's surprise move is still rippling across markets. lift.d: indices getting a what did you make of it? >> the boj move? well, you have to do something. the reason you have to do something is that people really want something to be done. what ishe papers wrote, in common between the inquisition, karl marx, and central banks? redemption. whether you are burning people at the stakes in the 15th century, people wanted to help them. xists are selling a beautiful society at some point in time. central banks are trying to prove that somehow, we do not
need hard restructuring. we do not need to address labor markets. rishaad: that must have been the most contrived paper ever. >> it is not. in a sense, it is extremely close. if you offer salvation, redemption, it never goes away. people want redemption. that is built into our psyche. the boj, who say, what else can they do? angie: markets just want to make money at the end of the day, right? but here is the thing. when you put interest rates to negative, and you are buying , you just made it more expensive if you want to expand asset purchases in the long run, which is presumably the weapon they have left. >> correct. and also interest market teams
-- margins for the banks are likely to be lower. you are in centerline banks to lend outside of japan, not in japan. you incentivize people to take money out of japan. in most cases, it does not really work. policy.her does qe if neither of them are delivering inflation or growth, wages, what do you do next? the answer is there is nothing else in the toolbox. the only thing left in the toolbox is fiscal policy. that is why everybody is shifting towards fiscal. that is what we need to do going forward. , that is fiscal policy nationalizing capital markets. nobody calls it that, but essentially, that is what it is. central banks will be directly financing government spending, consumption, and investment. that implies the private sector
will be deployed arrived -- deprived of any capacity. essentially. it is not just in japan, coincidentally. the same applies to everybody else. when the highway bill in the u.s. was debated in september, was that then treasury should accumulate all investprofits to directly into infrastructure. angie: isn't that called texas? >> it is a tax on someone, the financial system. it is. it will ultimately cause lower return. further misallocation of resources. but for a number of years, it can work incredible he well, as communist countries discovered. at an earlier stage, you pump up demand quite a lot. they do not call it
specialization of credit. that is a very bad connotation. they are talking about fiscal policy. a proactive stance. but that is what it is. rishaad: what about the reforms economic summit to deliver and have not? is that in the toolbox as well? >> know japan, no india, no indonesia. none of them delivered structural reforms. japan has a sporadic labor market. some are less, some are more. u.s., about 50% of the jobs in the u.s. right now are contingent. not real jobs. you find some markets are less sporadic than others. angie: it is almost an indictment against democracy. because the thing is fiscal reform is very difficult in a
political environment. >> it is. enough, morengly democracies are behaving exactly the same way. the reason for this is very simple. if you are perceived not to have a legitimate -- rishaad: because we have not seen reforms in china, have we? >> that is right. you are more sensitive to people's views than a democracy. at the same time, you do not have a perceived mandate from people. interestingly enough, it is not just a problem of democracy. it is a problem of the most any human society. barring north korea and a couple other places. rishaad: you have to be benevolent. angie: benevolent dictatorship. behave moreracies democratic than democracies do. it is not just a political system. at the end of the day, it is
people. angie: social stability. >> you have to ask people, do you want structural change? everybody says yes. do you know that implies you will not have a job? really? do you know that implies your children may not go to school? what you find at the end of the day is it comes down to people. people requiring, requesting, easier paths. aether it is marxism were federal reserve, they are trying to deliver an easier policy, but it does not exist. that is why deflation is getting stronger rather than weaker. that is why you have gdp growth rates all over the place. that is why you do not have trade. rishaad: viktor, thank you very much. on the spanish inquisition, central banks, and marx
myanmar enters a new era today with a historic election. kyi's will dominate the upper and lower houses after a landslide victory, myanmar's first civilian government in half a century. david tweed is with me. suu kyi cannot be president. do we have a clue who it will be? >> it is incredible to think the elections were in november. here we are on the first day of parliament. and we do not know much more than we did in november when she won the election. we do not know who the candidate
is for the presidency. we should have something by mid february because the current president steps down at the end of february. it will be decided by the beginning of march. so let's look out for that one. we do not have any clues about cabinet ministers either. when names come out, she tries to quash that. a lot of opacity, i suppose. rishaad: talking of opacity, what about policy? >> once again, we know some of the broad structures of policy they want to bring in. their want to broaden the tax base, but we do not know how. they want more foreign investment, but we do not know which industries. rishaad: cannot be all of them. >> she will have unprecedented accent -- access to talk
internationally. this is a woman with an extraordinary amount of contact with very important business people and politicians outside , notwithstanding the fact she was under house arrest for 15 years. it will be interesting to see how she manages to parlay the incredible networks she has. rishaad: david, thank you very much. angie: let's check in on trading in sydney. asian stocks extending gains across the region on boj's surprise negative interest rate. .75%ve australia climbing despite china's official factory pmi dropping to 49.4 since january. , gains of .05%.
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the tope watching stories this hour. asian equities going for fourth day of gains after negative interest rates. decision gave a 234 billion jump in market capitalization since friday. gains in tokyo are keeping the regional benchmark in positive territory despite falls in hong kong and shanghai. the chinese factory officials -- the tmi fell to 49.4 in january.
the longest stretch below 50 on record. at 48.4 andgauge non-factory pmi edged down to 53.5. that is from a 16 month high in december. the party takes control of myanmar, ending more than half a century of military rule. she is yet to reveal who will be president in march. and what the government's priorities will be with an economy growing each year. she has alleged to meet the country anyway. let's get the latest from the markets. for that, let's go to david. david: very interesting move, angie. i think what is different between when we started and from now, this distinction between what is happening in japan and everything else is becoming more clear. everything else started to fall midmorning.
japan, australia to a lesser extent and south korea. there are expectations they might need to act given what the doj announced on friday. they are getting out of the lunch break at 1.8% but everything else is falling. msci asia-pacific is falling at the moment. with the exception of the implications of what the doj did, there is a flurry of bad news. asia-pacific is falling at the moment. pmi out of china, the latest was thailand which came with their latest inflation for january showing a 13 straight month in negative. obviously, there are underlying challenges across all of these economies because they are tied to china, not japan. let's have a look at china. the reason we are seeing a drop is because of a flurry of
profit warnings from friday into the weekend into this morning. i want to show you -- on average, 60, 70% drop in earnings. name oil fields, copper, your industry -- coal, construction and power and steelmaking issuing severe profit warnings. the you talk about the pmi, concept is fluid. when it starts to show, that is when you really feel it is tangible and more felt. angie? angie: let's focus on japan, david. everybody is watching japan for obvious reasons. how is it looking after the lunch break? david: let me give you an update. i will give you the benchmarks in a moment. these are the biggest movers. -- the story in japan
are these deals. we are pushing more and more below. if bank of america is correct, this 10 year will go towards zero in the near future. markets are cautious at the moment seeing how far these yields will go. if history teaches you japanng, deals in continue to drop lower and lower. back to you. --haad: they are to top talking. he is confident of winning but faces opposition from the bank fund. let's take a look at this with tim, a con economist. big, heuess with a thinks he has outbid everybody else, is that what makes them confident? terms and
conditions are better than the rivals. the government of japan will not get involved, will not somehow muddy the waters. if that is the case, he says my deal is better and they will choose it. that might not be how it plays out. the board of directors and management say they are keeping things in-house in japan. taiwanese is not the favorite bidder, but i think they can pull it out of the hat and get the deal which is supposed to be announced by the end of this week. that is when the board will supposedly announced its final decision. rishaad: what do you get out of this? get well, he is hoping to technology, lcds, camera modules, different things the shosh sharp offers. they have branded divisions as well.
thatis not an area foxconn does. they don't want to compete with other customers. when you are foxconn, you don't want to be selling anything that will be competing with apple or sony. that is something they have to work out. overall, they think they are getting access to a company with great technology, great manufacturing and automation. combining that, the experience is very high yields and volume manufacturing which is their specialty. those things combined will provide a superpower house that will be able to take on the korean company. rishaad: you have been telling me all morning about why it is not a good idea. can you remind me? foxconn itself has a history of doing bad deals to date. that is the ones they have done over $1 billion. mostly everyt out
small hundreds of millions of dollar deals -- they have been pretty bad. shows it is not been a good one. they are offering double to sharp and it is a lossmaking company. he does not have a track record to show he can turn things around. it is a big deal if he does. there is nothing to suggest he can do it with sharp. rishaad: thank you, tim. angie: in other news, buying more planes expanding. the number of people visiting japan. worthperjumbo in a deal $1.3 billion. they will fly the tokyo-honolulu route. the carrier raised its profit forecast by 25% to more than $530 million. s has raised $12
million to expand in asia. it gives users access to hundreds of gyms and fitness classes. says kfit will help companies broaden their appeal. 30% to 50% for most of our partners. a lot can actually accommodate. gyms, they have the fixed asset of the facilities. it is great for them to get incremental profit. the way we look at it is complementary to the business. we want to reach out to more people. angie: for the first time in nearly a decade, china has lost ground in catching up of the american economy. u.s. gdp rose by $590 billion last year. china added $439 billion.
the chinese economy is excited to expand 6.5% this year. let's turn now to the yuan. china is falling short in its effort to starve offshore speculators of the funds. currencys now is our editor robin. pdoc won?mean the feeling thats the some people are saying pboc has won this battle against speculators. if you look deeper into the issue, it is more than that. the first two weeks, we have had this crazy time of yuan overnight borrowing costs going up over 66%. also, the gap between the offshore and the yuan rates became stronger than the onshore currency.
but, the problem with china is its economy is growing at its slowest rate in 25 years. they cannot keep on spending so much money on the yuan. they have to focus on the economy as well. they are caught between the devil and the darkness. now, you have the borrowing costs back to levels they were before the first two weeks of the year. now, the cnh as become weaker again. it is about 0.4% weaker than the yuan onshore currency. that is leaving a window open for speculators who have been burned so far this month. it leaves the door just a little bit open for them to come back. reserves, because the arsenal, if you will, is the $3.3 trillion it has. if it spends it all, that is the issue. -- this is, assault
really the rhetoric we are talking about. robin: absolutely. as i was saying earlier, this is in response to that war comment which was in response the george soros. i don't think he even expected this fiery reaction. so, he said -- he did say china is headed for a hard landing -- the currency, onshore currency is 1.3% so far this year. that is not a small decline when you consider it used to be hardly moved. so, looking ahead -- what is concerning -- the currency stockpiled, it is $3.3 trillion. that is by far the world's largest stockpile. $1hough they are spending trillion in estimated outflows last year, according to our
colleagues, but they can continue this for a while at least. angie: until it is gone. you.n, thank rishaad: it is a new year. it was not much of a boom for hong kong as it was in the past. the relative strength of the dollar has put retailers under pressure. let's bring in catherine larkin. let's talk about these retailers. catherine: the luxury retailers are going to be the hardest hit. the jewelry makers, watchmakers. they have already told investors it will be a challenging lunar new year in terms of sales. others to watch out for -- emperor watch. a lot of these companies could have struggling chinese new year sales and translating into the struggling first quarter sales. rishaad: the retail landscape in hong kong has changed. what do the retailers effectively do about this?/ catherine: we will see a lot more discounting, trying to
drive more traffic into the sales. in the long-term, more consolidation. fewer stores. we will see more acquisitions, some of these companies with four or five stores. consolidated into one or two. rishaad: especially when you look at the big luxury retailers as well. -- doesg-term affects this change the model of hong kong? catherine: i think the consumer is different. hong kong needs to realize that four or five years ago, they could depend on the visitor from mainland china to spend a bit on luxury purchases. the mainland chinese visitors are not interested in spending that much anymore. in addition to that, they are not coming is often. we need a new model in hong kong about who you are attracting and there will be a lower-cost consumer and fewer numbers. rishaad: thank you very much, catherine larkin. angie: we have some breaking
news to tell you about right now. steel plans to make nations steel its unit. it has a percent of it. they are under increasing pressure to consolidate in face of the global supply glut. steel climbed the most in a year over speculation of the takeover and now it is climbing more than 18% higher. rishaad: we will have more details on that. coming up next, china's official factory gauge. we will talk about the slowdown as asia edge continues. ♪
attackers blew themselves up as rescuers arrived. the peace talks have had a rocky start with rebel groups only agreeing to take part in the last minute. they will meet with both sides separately today. on alert, the defense ministry its headquarters after reports that north korea may plan a long-range rocket test. they have seen activity and a ballistic missile test site that consisted with launches. it is less than a month since north korea detonated what it called a hydrogen bomb. hong kong's legislative session has $700 million for a bridge linking two towns. the chinese contribution is $4.3 billion to the project. in 42 kilometer bridge began
2009 and has been plagued by delays and cost overruns. it was supposed to be completed this year, but one official says even 2020 may not be realistic. journalists, this is bloomberg news. angie: welcome back. joining me is rish, sheri and victor. what is a good strategy for china? victor: you mean equity strategy? angie: no, if you are china, what should you do? victor: it is between a rock and i hard place. no matter what they do, they will suffer. i personally think what they should do is dramatically increase fiscal spending, particularly in the areas outside of infrastructure. hat you't want to -- w should do is try to reduce precautionary savings as much as
you can. your welfare, education, those sorts of excesses. economists are simple people -- they just look at the numbers. the other alternative is to destroy the town to have built and rebuild them. because if you destroy gdp and when you rebuild it -- rishaad: you dig a hole and you fill it up and then dig another one and carry on. the point being is -- what about debt? you get more and more involved with debt which is not being addressed. is that coming home to roost? viktor: the same applies everywhere globally. it is not just china's problem. if we think about the u.s., china, korea, thailand -- can they really deliver going forward? the answer is no. almost nobody can deliver it
anymore. rishaad: the absence of inflation as well. viktor: that is a good reason why we don't have inflation. that is because we have too much debt and capacity and we are refusing to give real acts of capacity which means unemployment. from china's point of view, just like with japan, the criteria is not leveraging. the criteria is how you can continue leveraging on in a more moderate pace. that is the objective. so, from china's perspective, from my point of view fiscal spending has to increase, but you can really not infrastructure related. they need to make sure liquidity grows which means there needs to be full frontal going through. background,, in the you have to do structural reforms. the problem is whether you look
at agriculture, labor market reforms -- nothing has happened since 2013. angie: i know we are talking about china but just because you mentioned the building and rebuilding factor, i want to go to japan for a minute because what was interesting for me is there is always some kind of construction project. then you have the disaster back in 2011. the tokyo 2020 olympics coming up. despite all the construction and the japanese economy can still get out of that vicious cycle? viktor: because it is not socially or economically useful. economists are simple people. they do not differentiate what is socially or economically useful and what is not. that is why destroying a village is actually good news. rebuilding it again is good news even though you really have not done everything going forward. that is the problem.
the problem is not how you spent. the challenge with japan has always been domestic economy. whatever the best in the world is actually in japan, whatever the most competitive in the world is in japan, but the average is actually quite low. the average productivity rates domestically, utilities, construction -- everything you look at domestic areas are hardly unproductive and there is a reason. the basic reason is the labor market. number two, limitations in usage of land, limitations on deregulation of domestic trade, whether it is that. angie: we saw what happened to the yen. it looks like we are back to the race to the bottom. do you think china is looking at this and saying do we need to retaliate with a yen? viktor: it is not really minted in beijing. it is minted in washington, frank kurt and in tokyo --
frankfurt and in tokyo. that is where -- there are certain things china can control, but there are many issues china cannot control. therefore, ideally from the chinese perspective, somehow we get a global recovery, global trade zooms from 1.5% to 6%. suddenly, they can export their way out. surplus will increase. as it increases, you need to invest less. as they invest less, they reduce the rei's. it is a perfect scenario. if you can combine that with consumers feeling better, then you have the rebalancing. the problem with china is trade will never come back. liquidity will never come back. the consumers would not be able to rebalance. china therefore has to try to raise their share of global trade. in other words, the good news
about japan in 1990 or 1991 was japan could settle for diminishing imports over a long. period of time. they settled for a diminishing share of the global market between 1990 and 2007. global economy grew. china cannot settle for diminishing market share because there is no growth anymore. china actually needs to raise their market share. that is where the currency comes in. angie: 1.3 billion people depending on jobs for social stability. viktor: and a lot of it is hoarding labor. angie: viktor, thank you. coming up next -- rishaad: it is a bit different than thvietnam. the new leadership team. angie: and what it means for the economy. you are watching asia edge. ♪
angie: lots of things happening on the political front. talking about a new era in myanmar and vietnam in new transition. rishaad: the usual five-year term. hanoi our bloomberg bureau chief is here. we have this leadership change. what does it mean for direction? >> as you mentioned, bit of musical chairs. the most important job everyone was looking for is who was going to be the general secretary of the party, a very important role. it came down to two guys. the current secretary and the prime and is there. he challenge the current general secretary. he was reelected to the role. two very different men. one is known as a conservative while the ohther is a
reformist. the question is who was better for investors? note was put out this morning saying they do not expect any changes for the macro economic picture. a lot of economists feel that way as well. it really was under his administration that the party signed on to the tpp. vietnam will be the biggest beneficiary and the party wants to ratify that later this year. even though you have these terms, you cannot paint them. rishaad: what was the noise like coming out of this? >> a lot of interesting stuff because there was all that back-and-forth. i think in the end, for the party is saying -- we spoke to a deputy foreign minister -- who basically said the party wants the reinsurer investors that nothing will really change. they will push ahead with these economic reforms they have been
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