How Huawei's Chip Breakthrough Used US Tech | Bloomberg: The China Show 3/8/2024
We're now just half an hour away from the open in Hong Kong. Shenzhen and Shanghai are watching the China show. I'm Yvonne Man. Our top stories this morning. Traders keeping an eye on policy signals from central bank's dovish comments. And the Fed and ECB pushing Asian stocks higher while the yen strengthens on Bank of Japan. Rate hike bets.
China's regulators are said to be scrutinizing smaller banks bond investments after a recent rally pushed sovereign yields near a record low. Plus, we have an exclusive conversation with JPMorgan Asset Management's China CEO Desiree Wang on the outlook for business on the mainland. A quick look at the price action here on this Friday morning. It looks to be a risk on session here in the Asia Pacific.
We're up about 6/10 of 1% for Asian stocks. It really was what we heard from Jay Powell saying that they're not far from the confidence needed to cut those rates. You add that to an easy piece signaling possibly rate cuts could be coming in June. That certainly is lifting the market here. Stocks as well as bonds were better overnight. And we're seeing a U.S. ten year yield getting ever so closer to that 4% as well.
Also, we're seeing when it comes to stocks hitting records in the U.S. again, So will that U.S. jobs report roil this party? That's the key question here. We did see that blowout payrolls report
in January. So certainly there might be some room for some upside surprise here. 200,000 is what the estimate is going for here today. And as I go and Dragon, we're seeing
some downside overnight here. And we have seen the CSI 300, the biggest two day loss in more than a month. I take it our futures are panning out, though. We're still seeing some positivity when it cross. Futures are 4/10 of a percent to the upside.
CVS continue their rally, right? We're at 228 for your Chinese ten year yield. We talked about that Bloomberg scoop. Our regular regulator is looking very closely now at these bond investments in some of these regional banks. We're concerned that they might be speculating on these securities more so than actually lending out to boost the economy. We're still dealing with a stronger, slightly stronger renminbi seven, 1990 here, just given what we were seeing with the Fed and the dollar as well. But JGBs Japan yen, they're certainly still in focus. The outperformer among the G10, we
talked about those wage growth. We saw the best day since late December for the yen in particular. So that's really what your agenda is paying out to be here today. We talked about the bond market scrutiny. HCI were hitting around that 50 day
moving average as well, watching some of these US-China ties in this part of the show here as well as we count down that State of the Union speech from President Biden. And also we're watching these liquidation sort of hearings playing out for the likes of Wonka as well as Kaisa here this morning. ZTE earnings are on tap and just dropping here. Hong Kong government publishing that Article 23 draft as it fast tracks this new security law.
All right. Let's talk more about our top story and our our big guest here this morning. It's been a year since JPMorgan rebranded its asset management business in the mainland after buying out its joint venture partner. It's also listing a new ETF next week, tracking the CSI A50 index. Joining us exclusively now to discuss all this and more is Desiree Wang, Jp morgan Asset Management, China CEO.
Desiree, it's great to have you here in Hong Kong. Thank you. Obviously, we've been talking about this market, three years of equity declines. You've seen confidence among consumers, foreign investors have seen, you know, cratered, to say the least. But then you've seen measures from the government and policymakers to put a floor across markets, across this economy.
And this week, what people are calling an ambitious 5% growth target. What's business been like from your end? Oh, it has been a very busy 12 months for us. And you just mentioned the data one year ago. It quite doesn't control our business on the ground and we did a lot of things afterwards. We rebranded the business to Jp morgan as a management China, and then we moved about our 400 China stuff into our Shanghai, all facing Shanghai Tower.
And currently we are managing over 90 mutual funds on behalf of our 64 million, our Chinese clients post retail, institutional, and we're helping them invest both domestically and internationally. What is your approach in investing in China right now? Obviously, there's a long term headwinds, but how do you square that with depressed valuations and pockets of opportunities? I think the benefits our business is we are managing a diversified business. So across different client channels, across different asset classes.
So you probably look at equity, but we also have fixed income, we have active, we also have a passive like your destination ETF. So we are approaching the different market, different asset classes in different way. And what strategies are doing well, we take a look at your funds with whether it's fixed income equities, mutual funds are the high dividend yield plays. Is that still going to be the winning
strategies in 2024? Yeah, I think the high dividend and clients asking for income definitely will still continue to play. And I think it's just a new rising trend. It's a at this moment and very interesting is if you look at the risk appetite, I think when you start to talk about risk appetite, if you think about the to two years of market equity market declining, definitely that risk appetite will be relatively low. And we see that if you look at the mutual fund industry, the equity fund, active equity fund, um, actually dropped off from at the peak, which is the end of 2021, represents about 24% of the whole industry. Um, and now is about 14% of the whole a
U.N. And however we are seeing the um, for other asset classes like money market if. Fixed income, both active and a passive and passive equity, including ETFs you just mentioned. Actually, the aim is rising. So we are seeing the whole mutual fund industry, um, actually is still growing year on year. And can you believe it in 2023, the aim for the whole mutual fund industry actually grows 6%. Wow. Okay.
What's still needed then, for China to really regain that heft and global portfolios? What are conversations with clients like now? Oh, I think clients we have different type of clients, so different type of conversations. And interesting is when the market is slowed down, people start to think. So we see a lot of our clients they are using over the past two years, they are trying to reflect on how we should invest better, how show to sell our products better, etc.. So actually it's a great timing for us. JPMorgan because a lot of our clients are currently start to look at overseas investments, overseas experience for a potential answer area for diversification or area for potential improvement. Yeah, that brings me to Kudi. I Yeah. Which is one of the only sort of channels for onshore asset managers to really provide products with foreign exposure.
And it's really been in the spotlight these days because you have seen a surge in demand when it comes to, you know, ETF premiums have surged. You see demand for offshore products as well. What are you seeing from your end in terms of demand right now? It's not surprising to us because we see all the investors, all the money always trying to chase a better offer and a better bid opportunities. That's the nature of investments. And we do, as you mention, that we do see rising demand for offshore investment.
And if you look at the interest rate differential between China and the US and Bloomberg, keep reporting every day like Japan, equity all time high, US equity all time high, definitely. And I think it's a good thing for clients to consider the diversification in their portfolio, because actually I keep talking to our client that the Chinese households as portfolio have too little percentage in offshore investment, too much strong home equity bias. So actually this is good for the the health of the overall portfolio. For regulators, I'm guessing that that
might raise some alarm bells about capital outflows. Are you hearing any sense or any signs of slowing quotas when it comes to Q2 or Q2? Not really. I think the process has always been on track and we've been speaking to them on a constant basis. And regulators here, I think they are trying to make sure the two way flow are are both open and available to investors. For example, we talk about about the coup de flow. But if you look at the other side of the
flow story, like the inbound, if you look at it on the northbound for the stock connect index, people keep tracking, looking at the inbound for inbound flow and it's everything's the China equity market about a month on February 5th we see the inbound from the north spine. The flow for February the single one months is about I think 60 billion year, maybe exceeding the whole number for the whole year, 2020 to 44 billion renminbi. So basically, we think that as long as a market is doing well, that the flow naturally follow where they want to go. I want to talk a little more about just regulatory environment right now. I mean, you do have a Q2 ETF that tracks the S&P 500 you've been trying to get approval of since late September.
I believe it's still pending. Are you worried that regulators are scrutinizing some of these products now? No, they have a different pace for approving different products. We also have this last November, the Hong Kong low vol High Dividend ETF being launched, which is also attracting the money to investing, doing the low ball and high dividend, which you talk about, the income stream play to that and that IPO went pretty well. Okay let's have another IPO which is your ETF that you just launched recently, the A50 ETF. You are the first 100% foreign owned
fund house that is issuing this onshore. Yeah we are the only 100% for we own the house doing the local ETF business as well. Yeah. How has it been so far as good?
Fundraising is good. We have and as you mentioned, the fund will be the ETF will be listed next Tuesday. Yeah. So we are busily preparing for that. I mean, growing an ETF business in China, I'm guessing is not easy. You have a lot of fierce competition from local ETF issuers. You have also volatility in this market that could impact ETF performance as well. What?
Is your strategy to gather more assets on the mainland? Oh, I think you have to work harder and smarter. For example, one thing we are reflecting on how we can do things better is we attach a lot of importance to investment education. So basically, for example, for this single IPO, we did more than hundreds of offline training briefings to our clients to make sure that they know what they are buying and then know that understand the index that they're buying. Yeah, in terms of fees, I mean, is that
something that you think are competitive enough right now? You know, I think we've heard from other analysts saying, though, that there might be some sort of fund raising war, just given so much interest into ETFs among investors now. Do you foresee something like that? What do you mean? The fee, the management fee for the or fund raising wars or at least fees being, you know, a race to the bottom? In some ways, that's actually what's helping level play for us is we have we never do that like the local stuff. What do we do is we do the trainings, we talk to brokers, we have a solid relationship and full support, full blown kind of a partnership with our brokers. But we don't I'm not sure the fee you're talking about. But if that's talk about like brokerage commissions, those type of thing. Yeah, but we never do that. And the good thing is the regulator is
eliminating that at the moment. So you have a level play the whole really that. And who are you going to be targeting? Is it more retail audience, domestic or institutional investors? You mean for that specific product or broadly ETF? For ETF, we're going to to start to ways on domestic clients and for example, the specific ETF we're talking about now, CSI A50, So that index ETF could be listed offshore. So it's ETF Connect.
So it would be available for global investors at next stage. But for the first stage, we talk to the domestic investors. Could it be retail for the IPO and then you know money well coming afterwards. Okay. You mentioned a bit about the business overall that there's no plans from Jp morgan Asset Management to really, you know, materially expand the business or even downsize right now. Is that still the strategy when it comes to talent and hiring? I think we try to material expand our business.
If we can make our growth story really work well. And we do focus a lot on growing the business, making sure that we have the right products for our clients. And in and I think we're on the right track. What sort of new products could be in the pipeline as a mutual fund is ETFs that you're looking at both both as I mentioned, that we are we are running a diversified business, so we're doing both mutual funds and ETFs and in both equity and fixed income, active and passive. In terms of hiring, I mean, obviously there's been reports about, you know, local banks, brokerages that have, you know, had been faced with a bit of austerity with China cracking down on some of these they call hedonistic bankers. And so compensations have been cut. This is an economy where there's little
to no inflation right now. And what are you seeing in terms of your wages and bonuses? You know, do you feel the pressure to follow suit? Oh, no, not really. We are quite committed and allowed to offer our locally competitive packages to our people. And we do think that as well, as I
mentioned, business actually probably for our whole financial industrial people is our most important asset. So we are coming to the to be competitive on this and we are committed to keep hiring the top talent in the market and we're still doing that. So you're going to be hiring this year? HeadCount Yes. Yeah, better than last year depends, because we continuously review our business and evaluate where is a need for talent and a week, where is the need right now? Do you think we are focusing more on investment in research and some parts of the distribution, right? Yeah, that's right. Thank you so much. It was a pleasure. Thank you so much, everyone there.
China CEO at Jp morgan Asset Management joining us exclusively here in Hong Kong. Well, still ahead, President Biden is set to deliver his State of the Union address. We look at how China is likely to factor into this year's speech. But first, why China's biggest energy producer thinks the country's oil demand is set for a low growth phrase. Phase, I should say this is the China show. Good morning. All right. Some breaking news crossing of Bloomberg
here right now. So we're talking a bit more about Huawei and this chip breakthrough and what we're hearing a little bit more now from our sources that the company did use tech from two US gear suppliers. So those include Applied Materials and LAM Research to manufacture and advanced seven nanometer chip for Huawei back in 2023. So in some ways it does signal that Huawei did rely on U.S. technology to produce this advanced chip in China last year, which raises a lot of eyebrows on what the Biden administration is going to do just given these chip curbs and how we able to skirt around them according to this reporting. So the dosage of the time still cannot entirely replace certain foreign components and equipment required for cutting edge products like chips in particular.
So this, of course, as we hear a big theme in the embassy of self-sufficiency and new productive forces. Let's bring in our chief geoeconomics analyst for global economics, Jennifer Wells, joining us now. Jennifer, I mean, obviously this news about Huawei and really its reliance still on on some U.S. tech as as our reporting shows, this one story of just growing sort of tensions between the U.S. and China when it comes to technological advancements.
You were listening to some of the commentary from Wang Yi yesterday in that presser as well. What's the sort of state of play right now between the two nations, do you think? Well, I think the news is breaking at a really interesting time right before President Biden is about to deliver the State of the Union address, which largely focuses on domestic policy. But I wouldn't be surprised if there's a strong China angle to it. And in particular, a lot of emphasis on the steps the Biden administration has taken to try and limit China's access to technology exactly like this for making chips. You know, it's interesting. Commerce Secretary Raimondo is actually
in China around the time that Huawei launched this phone and at the Times that Commerce is going to investigate how they made the chip that underlies this technology, because it seemed to be more advanced than what the United States thought China would be able to accomplish based on the restrictions that were already in place. We're still waiting for the results of that investigation, but I suspect this news is going to put more pressure on commerce to speed that up and release the results. And we did a story just about, you know, the U.S. reaching out to its allies to try to at least broaden that that fence a little bit. There has been some pushback from some
countries as well. I mean, how do you see the allies participating in this? Does it need more of a multilateral sort of effort to curb China's technological advance? I mean, really, the multilateral aspect to it is critical to these export controls functioning in large part because the latest version of the restrictions, the updated restrictions that came out in October that built on the ones released the prior year are really seeking to expand the scope of what's covered by the United States export controls, expanding it to additional equipment, expanding it to additional countries that the United States worries could be sort of transshipment hubs for this equipment to eventually flow to China. But ultimately, this is a very challenging sort of enforcement issue for the Biden administration and for any partners that are involved in it to face, you know, countries like China have immense resources to dedicate to priorities, which Beijing has made clear, you know, advanced chipmaking is one of them. And there's a lot of ways in which they can try and skirt those export controls. Developing a tight enough net around it is a very challenging maneuver, especially given how ambitious these export controls are.
And it looks like it is going to be a rematch between President Biden and the former president, Donald Trump. How to China be looking at this election, Jennifer? I mean, I think from Beijing's perspective, really, regardless of who wins, they're expecting the United States to continue to take a pretty tough approach to China. And we heard this from Wang Yi during his press conference this week in Beijing, where he was talking about the fact that the United States, despite some of the progress that's been made from his perspective in stabilizing the relationship with President Biden and Xi meeting in San Francisco, the United States continues to take steps to limit China's access to technology from Beijing's perspective, try and contain China's rise before in their most likely to recent U.S. steps to limit China's access to sensitive data and launch an investigation into China made connected vehicles. At the same time, the U.S.
Congress is considering bans on TikTok and on Chinese biotech firms. So I think what that demonstrates is even though a lot of the talk over the last few months has been about stabilizing and improving the relationship, the arc of that relationship remains very much a competitive one. Jennifer Welch, great stuff. Thanks for staying up with us. Our global economy of a Welch there, joining us out of D.C. as we count down to President Biden's State of the Union address. Take a look.
When it comes to energy futures, we're still in positive territory here this morning. HCI are watching very closely. Those pre-market were up about a third of 1% be continue to rally seven $24. China. Plenty more ahead. This is Bloomberg. Some big stories we're tracking for you today. The Hong Kong government has published a draft of a new security law to be formally introduced to the city's legislature on Friday morning.
The fast track process follows a month long public consultation. The draft law, known as Article 23, proposes maximum life prison terms for treason and insurrection, but also reduces a defense of public interest. Hong Kong chief executive Jon Lee says it must be passed as soon as possible. The U.S. Congress, too, moving closer to forcing
tiktok's Chinese parent bytedance to sell the social media platform over national security concerns. The House Energy and Commerce Committee voted unanimously to advance a bill blocking app stores and Internet service providers from offering tech talk. The company is calling on US users to protest directly to their lawmakers. President Biden plans to direct the U.S. military to establish a temporary ports on the Gaza coast to ramp up the delivery of aid and ease the humanitarian crisis in the territory.
Senior administration officials say the president will announce the steps in his State of the Union address in a few hours. And we're told the port will take weeks to build and involve U.S. military personnel on ships offshore, but not on the ground in Gaza. Our take a look at what stocks to watch here at the open. Air Futures looking pretty positive here right now. SMI see, that's one to watch here on our Bloomberg scoop that this chip breakthrough in the chip that was used from SMI.
SI did get tech from two US gear suppliers. The stock is up about 1% here this morning. And we're watching very closely some of these crane makers as well. There's been an espionage probe that finds communications devices some of these cargo cranes, according to the Journal. And we're watching health care stock has given what we've been seeing this the fears about this biotech bill being passed or at least advancing within this Senate committee. There we are seeing them recovering from one being hit just this week as well. Interesting.
China Galaxy also cutting its recommendation on Wu Shi Biologics to hold from an ad on the back of those concerns. But right now we're seeing a bit of recovery there. Hang Seng also recovering as well, were up about a third of 1%.
HS tech is flat right now. Our special coverage now of President Biden's State of the Union address starts in a moment.
2024-03-11 03:07
