tv Bloomberg Daybreak Asia Bloomberg June 20, 2017 7:00pm-9:01pm EDT
♪ going global, chinese stocks joining msci's benchmark indexes, bringing in a $6.9 trillion market to the world. yvonne: a bright spot in the markets to oil slides into a bear market. betty: the bank of england governor repeats his worries about brexit. he says there is no reason to raise rates. -- rush rates.
this is daybreak asia in hong kong, just after 7:00 a.m. i am betty liu. yvonne: and i am yvonne man. club.joining the msci they also added 53 more stocks to this conclusion. a long time coming for china, a lot of questions. betty: given we were not the ones flags prominently, the stock connect china put in place. that being a key reason why they decided to include these shares. yvonne: they mentioned it was a bringingger, overall, a boost to the hong kong and shanghai markets today. markets a after oil slumping into the bear market, from the highs we saw in february. let's see how new zealand is performing this morning,
continuing this negative tone. stocks down 0.2%. still a slightly higher dollar story, the kiwi at .7243 against the dollar. energy stocks in australia, those are the ones to watch. under pressure today with wti. tumbling to the lowest level in nine months overnight. the market getting fatigued on these opec-led cut. futures heading lower in sydney. nikkei futures ending 0.8% up. futures down 35%, according to chicago nikkei futures. dollar-yen, 110.35. we expecting boj minutes from speaking in kuroda tokyo this afternoon. outside of china it seems pretty risk off. very much so, those oil
prices are a big factor in the u.s. markets. let's pull up the boards and see how wall street ended the day. it ended lower, tech shares back and forth, giving up those gains we saw yesterday. nobody can make up their mind on where to go. nasdaq down almost 1%, dow, down 63 perp -- points. let's pull up oil prices, really weighing on the markets and these energy shares. downa look at nymex crude, on the 15% over the past month. 20%,y falling now, over into bear territory. we will see how much lower wti crude can go. now, first word news. president saysed he is glad about this month's interest rate hike and is willing to be patient over mixed economic data. however, he may be more skeptical about a more neutral
rate of 3% in coming years. though inflation remains a concern, he says it is sufficient to take the slack out of the labor market. >> inflation has been sluggish in the united states. that is not all bad, by the way, for those of us who lived through the 1970's. getting to 2% inflation has been uneven and sluggish. >> treasury secretary stephen mnuchin says the u.s. government would only introduce ultralong bonds if there is a market for regular issuances. a group is assessing investor demand for debt, at 50 and 100 years. committee including jpmorgan, bank of america, and goldman sachs will also give feedback. >> it is something we are seriously considering. i do think it is a tool that the government should strongly consider. are reaching out through the borrowing committee and investors to see what the demand
is. we do not want to greater program that is a completely one-off program. we want to see if it is an important part of our borrowing capabilities. >> a survey by the pboc found investorsnkers and more optimistic about the economic outlook is in the last quarter. it rose for both banking and business sectors, while more households are betting on better prize -- prices. forward is to save $1 billion by shipping production to china from mexico. manufacturing is expected to begin in the second half of a year after they closed the plant in michigan. it is the first major change made by ceo and marks it complete break from previous strategy. president trump has advised automakers against businesses overseas.
a former executive charged with conspiracy to commit fraud, among with raising prices toqatar. -- to qatar. they faced charges, along with the bank itself. dayal news 24 hours a powered by more than 1700 journalists and analysts in more than 120 countries. i am mean a melendez. -- nina melendez. this is bloomberg. betty: chinese stocks gain direct entry to msci indexes, marking a milestone, a defining moment, in beijing's effort to get into the second largest market. let's discuss what happened behind the scenes. fernandezman henry joining us from new york.
: happy to see you in hong kong. betty: i am in an appropriate ropos place.ap you are outlining different theors on what would push decision over the edge into a yes. point that defining finally convinced the committee to say, let's do this this year, let's do it now? you, wet the time i saw were in the middle of the consultation process. we ended up talking to about over 100 institutional investors from all the regions of the world. there was strong support with the proposal we put in place. we were able to get stronger support to revise it to a larger
number of large caps. that was one thing that was important. the second thing, a lot of investors were concerned about the data issues to create all sorts of investment vehicles. that is what happened in the last few weeks. with theogether shanghai exchange and others, we were able to solve a lot of those issues. i remember a month ago you said those were some of the big issues. two kind of curious, this step process. next year they will be included, but in two separate parts. what is the thinking behind that? henry: and has a great deal to do with trading limits, the ceilings of the amount of assets that can flow through the connect program.
after you do all the competitions on the number of shares and market cap, and look at what could investors put into through the shanghai and shenzhen connect program through hong kong, the ceiling was restrictive. therefore, what we are able to do is spend time with regulators as well. they will work together with us to see if we can get it done in one step. the announcement was for two steps, to make sure we need -- leave no flexibility. yvonne: i want to say hello to you. you mentioned this two-step process could change. one issue you raised was the daily limit on the stock connect to be abolished or significantly expanded. do you get any indication from chinese officials or the
exchanges that they are willing to do that before these inclusion dates? henry: we get quite a lot of good feedback and positive views from them that they will work very closely together with msci at that time to see how they can facilitate the flow of assets into the country. hoped we may be able to do it in one step. what we know today, the daily limit exists. we want to be cautious that if there is a change to that, it will have to be done in two steps. i want to bring up briefly for our viewers a look at the makeup of the msci index. it shows you in this bar chart, i am not sure if you can see that where you are in new york, theyellow line shows you
countries in asia that make up the index. 2010, it hasrom creeped higher and higher to now 62% are made up by asian countries, with the rest in europe, africa, and others, south america. some are saying this is perhaps becoming very asia-focused, maybe too concentrated now. what you say to that? henry: it reflects the realities of the weights and market capitalization in various regions of the world. aia has been very prosperous, lot of economic growth, great companies. particularly the technology companies coming out of china and hong kong and new york. the taiwanese companies are in technology as well. on the flip side, many emerging markets, particularly in south america and russia, they are
commodity exporters and some are oil exporters. there is been some declines in equity values in those places, itd therefore reduction in wa for a lot of asian countries. itty: before we had to break, am curious -- described to me that decision and a meeting to the extent that you can. was it one of the most intense meetings, was there a lot of debate? described to me because this decision was not made lightly by any means. the entire world was watching. henry: we spent a good deal of time on internal deliberations on our msci committee. i huge amount of time in consultation with our clients. we reflected a lot of those to that shanghai and shenzhen exchanges. they were positive about working with us in making this thing happened.
particularly a very strong role and they the vice chair president of the shanghai exchange. they engaged directly with us to figure out a way this could happen. yvonne: stay with us, we will continue more after this short break. plenty more to come. another will discuss china's inclusion in that decision from time,t 9:10 hong kong 11:10 out of sydney. this is bloomberg. ♪
betty: we are counting down to asia's first major market open this morning. we are looking at japanese futures, down about 0.3%. watching as we count down to the hong kong in chinese markets. they are opening at 9:30 a.m. hong kong time. i am betty liu. yvonne: i am yvonne man. let's bring back msci chairman and ceo, henry fernandez in our new york studio. talking about this china inclusion, essentially some arguing this is a watered-down proposal from the msci. just north of 7.3%, higher than what the initial basel was. but still, i drop in the ocean when it comes to china in the context of em. did msci give into this? i have china made concessions, but not exactly letting go, either. henry: when we were trying to do was great a path forward between
the needs of those institutional investors around the world, and the conditions in the marketplace inside china. we tried in the prior consultations to do a larger, significantly larger increase. we did not get a lot of response positive from those investors. so we scaled it back a bit to 169 stocks. that was well received, to the point in which we were able to ,ncrease it to a larger number 222 large caps. we left out the mid-caps, we are hoping they would be included at some point in the future. 0.73%, a small slice of the pie. when do you see that -- four c -- foresee that amount raising?
henry: it is a smaller weight than we would have liked at this early stage. but it is extremely historic, momentous, and symbolic. it opens up a path forward. we are trying to great an environment in which those investors get to experience directly investing in china and get to meet with companies. regulators and exchanges get to see those investors in action, and get everyone to the table. our plan is to keep going in future years. but the path and the speed will depend a great deal upon those things, the experience of those investors, the willingness on their part to field that a -- feel that a bigger weight is warranted -- wait is warranted.
beyond the three you mentioned? henry: we definitely get a view from inside china but there is a strong commitment to further opening up of the equity markets. they want to do it in a stable way, which is logical and makes sense for such a big market in such a big country. we have no hesitation in our belief the country wants to open up. the question is, at what speed they would like to do that? that is what we are going to watch and therefore determine the path of further increases. that speed could likely quicken, no? betty: -- henry: i would think so. in bringing them two parties to the table, the investors and the players, that will help immensely in getting everyone experience, getting to see the companies investing, hopefully getting good returns. everyone will feel more comfortable and open up even further. betty: before we move on to other countries, we are part of the -- we're looking at the press release. one final thing on china. the mid-caps you mentioned a few minutes ago -- obviously small caps not included.
what conditions need to be there? henry: the next inclusion is probably going to have a larger inclusion factor, 5% of the market capital to those large capitalization stocks. the mid-caps.y, the second category is the one we are focused on. we would like to expand the universe of shares that are available to international investors. yvonne: let's move on and talk about saudi arabia, which is also another pivotal moment for the gulf nation as well. you take a look at them on the watchlist for possible inclusion. what was the thinking behind that? what made it happen in the last two years? the kingdom really opened up the market for foreign investors. henry: a lot. the last three or four years we have been working a lot with local exchanges, them cma,
capital market authority, and senior people in the country. they have been following a very consistent, programmatic path of reform. it started in the fall of last year with regulatory reform, in terms of the lifting or increase in foreign investment limits. in april, they did a major stock market reform, with better delivery versus payment systems, twoomise of two plus instead of two plus zero. they have been moving very fast and very aggressively. that has allowed us to put the country on the watchlist as -- and consultation as soon as possible. betty: they have been on
hyperspeed you might say. i am try to get into them msci. ipo, thatsaudi aramco being significant for the country. what needs to happen from now until 12 months later, to make that decision be a yes? is there anything specifically you are looking for? henry: adding to what you said, these decisions come all the way down from the top, the deputy crown prince of the country has been focused. the minister of finance, energy, stockmarket authorities, and the like. quite a unified front and that has been welcomed by all. what we are now doing is trying to begin to gauge the reaction by international investors. many of them have not yet invested in the country. they need to set up accounts, a process, and get a sense of and experience in doing it.
that is a process that is likely to take a year or so before a decision can be made. yvonne: -- betty: thank you so much for joining us on this historic a in china and asia. henry fernandez, chairman and ceo of msci. do not forget, our interactive function, you can watch us live in see this interview like we just did. dive into any securities or bloomberg functions we talk about. thecan become part of conversation by sending us instant messages during our shows. this is for bloomberg subscribers only. this is bloomberg. ♪
yvonne: let's do a quick check of the latest business headlines. row with qualcomm turning ugly, saying qualcomm has an illegal business model. there was a january complaint that accuses qualcomm of trying to monopolize the chip game. result, -- betty: toshiba in the final stage of negotiations to sell its flash memory chip unit. sources say the board will meet later wednesday to review a series of offers. downain consortium has put $19 billion. ay ishe backing of inc j seen as critical. the bears are back in oil markets as it dips on the global
yvonne: it is 7:30 a.m. wednesday. cloudy, but no rain. that is an upside. 30 minutes away to asia's first major market open. watching the hong kong market after the defining moment, msci allowing them to join the club. betty: it is a huge moment for the chinese and also markets. it is like groundhog day. 7:30 p.m. tuesday in new york. markets closed a touch later touch lower with energy prices dragging it down. i am betty liu. yvonne: i am yvonne man.
you are watching "daybreak asia ." let's get first word news. >> msci has approved chinese domestic shares for inclusion in its benchmark indices, a landmark step in china's integration with the global financial system. it would give the almost $7 trillion a bigger market and everything etf to 401(k) retirement plans. shares of the included comprising .7% of their market gauge. >> when you do other computations on the number of shares and market cap and all what couldou look at investors put into the market, through the shanghai and shenzhen program with hong kong, the ceiling was restricted. therefore, we can spend time
with the regulators and see if we can get it done in one step. part of the announcement is on to steps, to make sure we leave no flexibility. nina: msci had held off on reclassifying saudi arabia, argentina, and nigeria. it has been added to a potential watchlist of emerging market status. they call it an immense achievement. argentina will remain a frontier market for leased another year, while nigeria and will not be classified as that new market. theresa may settles into a political reality on wednesday, with a help billy rewritten program. it will be without the usual pageantry and marks a rare, two-year parliamentary session. the whole event will be overshadowed by discussion of how long may can cling on to power. of silence by
pushing back a rate hike and his concerns about brexit. he highlighted the risk to consumer spending. toney says he is in no rush raise interest rates. >> in the coming months, i would like to see the extent to which consumption growth is offset by other components of demand. as wages begin to firm, and generally, how the economy reacts to tighter financial conditions, and the reality of brexit negotiations. the new south korean president says he would like to draw the north into talks and even meet kim jong-un before the end of the year. jae-ing to cbs, moon said he needs to play a larger role in geopolitical politics, and that a visit to pyongyang was a good idea. dealing with the north is
tricky. >> kim jong-un is not a rational person. but president trump mentioned he is even willing to talk to kim jong-un over a burger and said it would be an honor to meet him. i believe president trump much further than i do. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am nina melendez. this is bloomberg. yvonne: back to our top story, msci's decision to add china to its benchmark indices. adam haigh joining us live from sydney. news, the etf move on offshore yen just a little bit. what is the likely impact when the market opens today? adam: i think overwhelmingly,
the senses of relief. we have been waiting for this for some time. there are been many years when it keeps getting kicked back. now we are finally here and investors can make the decisions and analysis they need to do, over the next two years allocate more of their capital to domestic chinese stocks. that is where we are now. in the immediate short-term, there is perhaps space for relief. we did see it on the futures trading in singapore. before they closed, they were a spike higher. we spoke to global advisors and they were clear, it was a game changer. active investors do not want to go all in an by domestic chinese stocks. they need to do more analysis of the securities than they have done in the past. investors will need to slow the increased down on occasion.
it leaves a positive sentiment for markets here. elsewhere, oil markets might have a tough day. we heard from henry fernandez of msci that they see this as a first step of perhaps several, where there could be more expansion of china in this index. let's talk about australia, the doom and gloom on the economy bringing trading ideas to quant folks at morgan stanley. you're talking about trade the might selloff as the economy deteriorates? adam: yes. this is a way to profit from the scenario where australia does increasingly deteriorate on the economic front. folks that morgan stanley, the bearish of all the wall street banks on the australian currencies, they expected to be as low as 64 by the end of next year.
that is 15% below where we are today. the crux surrounds the consumer. if we bring up the terminal chart, this encapsulates what worries morgan stanley, that consumer sentiment is a and they will find it increasingly difficult to be able to spend and prop up at the economy. in that scenario, the quant folks have highlighted rba group, carsales.com. where theronment aussie weakens further, stocks theysonic health care, score pretty highly on their quant screens, as well. betty: thank you so much, adam haigh in sydney assessing the market. .ots of factors, including msci another big factor was oil prices. west texas intermediate crude entered a bear market for the
first time since august on concerns the opec-let output cuts are failing to ease the global glut and supply. one of our editors has been tracking this for us. what is going on? is it opec that is the problem, the u.s.? what is going on? >> thank you for having me today. i think the answer to your question is, both. failing toe opec, ease this global glut of crude. you also have libya pumping the most screwed in four years. on top of that in the u.s., shale explorers have increased the number of rigs that they are using to drill for crude for 22 straight weeks. supplies are coming from everywhere. if there is any testament to how become, ais chart has chart we recently published on
the bloomberg terminal shows the amount of oil stored in tankers sapinkard's -- tankards at -- at sea is at the highest level in a while. betty: i want to bring up this chart, which describes exactly some of the points you were just making. crude are seeing wti hitting the bear market and tumbling, the amount of rigs put into production in the u.s. continue up at a straight line, i.e., production continues at a straight line in the u.s. how is the u.s. contributing to this bearish market, how you quantify this impact? lynn: i can tell you about the frack log. it is a term that describes this inventory of wells being drilled using these rigs, that have not
been completely -- completed or frack and brought into service. oil producers are waiting to bring that into service when the prices are right. the reason why it is so bearish for the oil market right now is the hast frack law grown to almost 6000 wells across u.s. oil fields. if you think about that on new production, that was -- represents about 100,000 barrels of new oil a day, just waiting to spring into the market. think of it like a spigot just waiting to turn on to flood the market. -- flood the market yet again, as soon as it starts recovering. yvonne: is this decline about supply? we are heading into the summer driving season. we should enjoy the warmer weather. lynn: you are absolutely right, we should be driving around and taking road trips. that is usually what we do this time of year.
but, the government data is showing that our demand for gasoline is falling this year. it is well below your earlier levels. at least in part, that is because punk prices are higher pricesey were -- pump are higher than they were a year ago. we saw them average $.40 a gallon above what they were in 2016. gasoline demand, which will in turn cap the crude demand that the refineries here. many road trips this summer. thank you for joining us live from san francisco on the oil markets. oil, the big driver in u.s. markets overnight. crude slid into that bear market. let's bring in su keenan to talk about the action we saw on wall street. su: we did see some movers, we will get to that in a moment. take a look at the close, all
that read on screen, close to unchanged. technical analyst like to see that. we had a global pharma company shooting up, a $4.5 billion deal, taking pressure from starboard value. tumbling the most in six months. they deal with mexican-style chicken. and are being hurt by ads cybersecurity eating away at margins. advanced micro devices, many buying into the stoxx and seems to lead retail in the dust. they are trying to come out with a faster chip for video gamers. let's go to the bloomberg. we have an interesting chart here showing the momentum returns. what you see on the far right-hand side is a big rise in these momentum stocks.
this is against the s&p 500. the ratio of the two hit a big record. that tells you if what we're looking at here is just a pause in the cost. there is much more room to ride higher on these momentum stocks. betty: let's talk about one stock in particular. ford will start importing the next focus from china. they had plans to do that in mexico, which we know they got heavily criticized for by the trump administration. su: we have ford announcing tuesday they are swapping out production in mexico and moving it to china in the next year, the back half of 2019. the shift has a lot to do with the number of manufacturing moves the company announced. the stock down, it has been
under pressure. they are expected to save more than $1 billion in terms of the way they would have had to retool at least one plant if they built the focus in the u.s. you might recall that one of the things that happened during the trump administration, a lot of it was criticism about ford, there has been no tweeting on the latest announcement as of today. back to you. that might change at any moment, you know that. coming up, toshiba said to be in the final stages of negotiations with bidders or their chip unit. this is bloomberg. ♪
toshiba will announce its -- bain corporation joining the agreement. mark, good to see you. we have not heard too much about toshiba when it comes to this bidding process. what is your initial take on that report so far that bain is emerging as the likely contender here? it seems like it is more about time for the japanese government. mark: the number of rumors in this field is staggering. the number listed -- number of potential bidders is huge. but it has been whittled down to ofs preferred conglomeration and others.ities that is being ordained by the japanese government as
preferred. i think it is positive because all investors in the memory -- crude could be an asset. could that technology leak to china, which is most investors worst nightmares in the memory industry. this deal seems to be preventing that. memory good solution for investors and a good solution for toshiba, because it will solve their major financial issues. yvonne: let's go straight to that, that ¥2.1 trillion reportedly offered by bain. how far does that go to repairing toshiba's balance sheet? mark: it totally repairs it. we can argue the company is not going to be profitable
afterwards because flash memory is generated almost the entire time for the company. it will not be profitable, but it will not have debt. this is a huge amount of money they are getting for this. major fundinghave issues after this. the problem is more in getting approval for the deal. digital,em is western their joint venture partner, is grating problems because they have consent in the joint venture agreement. they are demanding toshiba negotiate with them first. worry fortting toshiba to get the deal through, because of digital legal claims at the moment. betty: how much of a risk is that? how to -- how do you price in
that litigation? mark: it is a real risk, they do have consent. what i think is going on, western digital is forcing, pushing, trying to get negotiating leverage to come to the table and get something out of this deal. the problem is, i do not think western digital really wants to buy toshiba. i do not think they can afford it. to belly is unlikely acquired by china anyway for various reasons. the chinese government would have to approve this deal. whereas the deal with the japanese government would not likely have many issues. i do not know. betty: what are they trying to get? mark: i do not know. i am guessing they want some small stake. they definitely will want to have some assurances that they are not going to be stealing
their technology. i think those are the two things. and somen the entity, kind of assurances they are not going to have a major role here. 30 secondsonly have or so left. we talked about the demotion to section two of the tokyo stock exchange for toshiba. that is more of a risk of then delisting. what do you make of the recent share pricing we see out of toshiba, and how likely will we see it delisted? mark: total delisting still unlikely. japanese government and tokyo stock exchange are not likely to want that. it is not out of the question. the real question is whether they can get that deal through. if they can get that deal through, they are fine. if it drags out longer with
western digital legal lanes, it is possible they could get delisted. i still doubt it. price,point on the stock it has been doing so well bid, 2.1f these strong fixes all of the financial issues. plus, the westinghouse bankruptcy in the u.s., there had also been updates their that leads to the amount of debt they will have to pay might be less than what was originally feared. those are the things that are helping the stock out right now. benne: mark, i know you will anticipating this decision from toshiba. we are, too. senior research analyst joining us live from san francisco.
yvonne: this is "daybreak asia," live from hong kong. betty: i am betty liu. we are getting the minutes from the boj meeting in april, headlines coming out right now. a lot of what we have heard before. some boj members saying momentum toward the price goal is happening, but not firm enough. will not reach inflation target of 2% during the projection period, and that it is a risk to the japanese economy.
the numbers are skewed to the downside. but they are rewarding themselves, saying long-term rates they are implementing are working. yvonne: at least for now. but this was the april meeting, not the recent one. so they are a little bit dated. one member raised concerns when it comes to asset purchases, saying the boj should cut asset purchases incrementally. we know they sort of had, they have not been vocal about it. they do focus on yield curve control. the ecb talked about an exit strategy. there is increasing pressure for the boj to communicate more about that. is right, they could possibly be the last ones to hike at this point. looking at what the fed and the boe might be doing. plenty more to come. we are watching the impact of the msci decision on the asian markets. yvonne: let's bring in sophie
kamaruddin. toalong with the msci nod asia, another thing could drive asian sentiment today, oil prices back in bear market territory. base metals sliding as the dollar climbs. a weaker open in asia. looking at how the dollar yen is trading, potentially trading in tokyo. itn we take a look at what is around inflation, will sterling weigh on shares in sydney? pulling up the next board, we see how geopolitics is a driver of sentiment and that slump in oil denting the argument that stocks and consumer prices are transitory. that set shares lower in wall street. watch for miners in australia as metals drop. likely to weigh on the aussie. and, reaction to australian banks.
a complete change of strategy. >> this is the second hour of daybreak asia. i am yvonne in hong kong. yvonne has my back. we finally have the big decision today. the msci finally accepting shares. >> it came as a bit of a surprise. not just with the two-step process as they will take it more gradually. also adding some more stocks into the mix. some of the international investors were hoping for eight shares to be added as well. lots to talk about in the next half hour. down to theunting
9:30 open of the chinese and hong kong market. >> when you take a look at futures, that is indicating a higher is very we are seeing weakness across the board. this as oil enters a bear territory. we do have this on the up. take a look at what is going on the aussie dollar. metal is dropping. copper down about 9/10 of a percent after posting its biggest loss in six weeks. it is set for a fifth monthly drop. the demand could be the culprit. demand has been cut to a four-week low. biggest smelter is
cutting capacity. europe's third-largest producer says that china's cap meant meant to cutting capacity remains the big unknown. we do have gold rebounding up five straight days. gold futures slid below the 100 day moving average. the 200 day could be the next level to break her head that could see gold moving lower. also drumming up some concern in that area. gold has risen 8% this year helped by the uneven economic temper. the bears are out for oil today. crude has sunk to the lowest in seven months. near 20% from its every peak. implicationshave for inflation.
oil risks are falling into the 30's. that is adding fuel to the downturn. the levels to watch. >> thank you so much. let's take a look at the first word news. >> the belgian prime minister is revealing the security council. security officials say a man was shot i patrolling shoulders after detonating a bag at the central station. it is said to have been an explosive else. no one else was hurt. the incident continues a month of violent attacks in european cities.
they're going to be patient over mixed economic data. they are now more skeptical about getting the neutral rate to 3% in coming years. inflation remains a concern. been notablyhas sluggish in the united states. that is not all bad. beenng to 2% inflation has uneven and sluggish. >> treasury secretary stephen mnuchin says the u.s. government will only introduce ultralong bonds if there is a market for regular issuances. the group is assembling demand for charity with 100 years. they will also give feedback. >> it is something we are seriously considering.
is a tool the government should strongly consider. we are reaching out to see what the demand is. we don't want to create a program that is a one-off program. >> a survey by the pboc has found bankers more positive on the economic outlook than they moreon the last. households are betting on the rise in property prices. causes signsmood of economic stabilization in may. there in the final stage of negotiations to sell their chip unit to being capital. sources say they will meet later to review the meaning offers. it is slightly less than the bid
from broadcom. it is seen as crucial. global news 24 hours a day powered by more than 2700 journalists and analysts. i am paul allen. this is bloomberg. >> thank you so much. it is the fourth time that has been lucky for china when it comes to the inclusion of mainland shares. there are also lines to make ross on the bloomberg. market welcomes foreign investors. also saying they are going to improve the a share rule to facilitate foreign investors. the full implosion we will not see for some time. they say that will be a two-step process.
confidence in china's economic growth. let's bring in our panel of reporters. also bloomberg china market editor here in hong kong. let's start with you tom. it is widely seen as a milestone. will be included in the emerging market index. those will be available as you say 2018 as part of this decision. 7.03, about what we had expected prior to this decision. havey the msci saying they broad acceptance from their institutional inventor base. also they are seeing key factors that have changed their decisions on this including the
exchange that connects with should jim. this is suggesting regulators here will make that system ease here. the ceoe you spoke to of msci. thinks as well that he he really does expect that markets will continue to open after a steady and stable rate. the question was around the pace of that. closelypposite worked with the vice-chairman of securities regulator here. they receive strong support from this. also interesting to hear that the next focus in 2018 is looking are has to include mid-caps further down the line. also hope that this decision was welcomed and appropriate. expect itaying they
could lead to inflows between eight and 10 billion u.s. dollars. >> good feelings all around it seems. i want to play for you part of our interview with henry fernandez when he talks about expanding the number of shares going into the index. support withstrong the proposal put in place. we were able to get stronger support to revise it to a larger number of caps. that was one thing that was important. >> how important is it? >> it is obviously quite significant that china is finally part of these benchmark indexes. he did note that it is also a small step to begin with. turning to 222 companies. >> it will only be 169 and then
they popped it >> trade that is quite interesting. focus on mid-caps is where people will be interested in. the msci listed a bunch of conditions that china would have to meet for that next to occur. >> is it may be a rubber stamp from msci? are we going to see any meaningful inflow? were will be inflows, but know they deliberately scaled-back this proposal originally which allowed it to happen. the other significant change that occurred was the stock connect here. investors hadeign abided by different programs which are more restrict to. that was definitely pointed
out as very key for this decision. you mentioned the pace of reform is one question for fernandez and company. us trying to and get this out of him, what could happen that would actually expand that 0.7% rating that is not just symbolic but much more substantive. it is issues around corporate governance. that is a concern for investors as well. there are elements within this market that are strange that many would look at and say these needs to be reformed. when he wants to apply for an ipo, you have to have that signed off by the central government. the legal framework for them is relatively weak. as far as repatriating
investment, it seems they have some insurances on that. that had been previously a concern. if you may be just think this will be steady and stable opening up of markets, you hear that from people. the question always is how quickly it will transform. that comes down to who is winning the debate here in china. linked to thes party congresses political reshuffle and who gets the upper hand. maybe there is a strengthening at the center of the party on the back of that. they could be put through at a quicker pace. the expectation that next year they will step up reforms. it is a bit of a carrot and stick approach. china always looking at these things, they will not release
control completely. and then social stability on the back of that is always key for them. it is interesting they do think this will now be for more changes. back tord bringing it you, they mentioned that about the china stock connect. they wanted to see these quotas to be raised or expanded to allow for this to be increased. how likely is that going to happen? tom's point about control is important. this is something that china has tried to have in a certain way. want free flow capital. it is not that we have not heard any signs of rugrats, but it is there that msci has left themselves some room.
it will not have a dramatic impact on the overall index. ,f china does progress further -- >> good to get your take on this. we continue to analyze the decision with the man who previously led the consultation on china's in lucian. we are joined by the former head of equity research. >> later this hour, the future of alibaba. bloomberg. ♪
indexes after three rejection. ofs is the former head equity research at msci. great to have you. have biggest surprises this to you? >> not really. this is pretty much a delayed >> the waiting is still so marginal. 0.7%.lk about you talk about a shares compared to offshore stocks. they're going to be worth it by some 28%. does it really matter at the end of the day? doesn't have an impact on where the flows go? >> not really. in terms of initial weighting
based on current estimate, now flowu look at your passage , this will only be 2 billion u.s. dollars. that is just a couple hours of trading. be a very symbolic move over the long-term. have anes still accessibility issues which is the highlight. this is indeed a very difficult market to trade. it is disappointing for domestic investors. >> there is clearly going to be more hurdles. markets to be put on a global basis.
the machinations of thinking about it behind the scenes, i am kind of curious, was this year sort of they have to get it or not. if they weren't going to get it, what does that mean? if it is not included, i think the urgency to include will only increase. around 500 ipo's a year. the market is expanding rapidly. the whole market only has around 830 stocks. the more you delay the more problem you have. think this step-by-step process is the right move. this is a unique market. very ok. adjust toneed time to learn about this market. this is symbolic in a way that
inggered this learning curve order to effectively allocate this market. maybe no one needs to put any money in this market now. people definitely need to look ahead starting today. >> absolutely. what did you make of this two-step process? what you read into that? not just referring to the two-step process proposed for next year. they still have not offered much detail of how this process works. what i am referring to is a multistep inclusion over the years. seen that with taiwan and korea and all the other emerging architects. when they were included, they went to the same multistage process. the goal is really to help even
the transition to help make the change smoother. >> try to alleviate some of the flows. really quickly here, when it comes to internationalization of the yen, do you think this jump starts those reforms? or could we see a repeat of what , where when the renminbi everyone got really excited but then the reforms took a retreat? yes, it is tempting to tie this directly to the currency issue. cynicalant to take a view, you can see the chinese welcome. at the end of the day we're not talking about big numbers here
in the context of china's foreign policy reserve. here, theome numbers total inflow is only around $2 billion. the current ownership today is only around 72 billion u.s. dollars. if you look at foreign courtesy, it is still around $3 trillion. the capital account, the foreign direct investment is easily well above $100 billion. the current count is pretty volatile but could be 300 billion to 500 and dollars. the impact on the currency is really minimal at this point. >> thank you so much for joining us on this. giving us your perspective on this historic moment. we will continue to discuss msci position in china.
china president joining us in less than an hour from now. we will also talk to the co-op your of -- co-author of red capitalism. pter we will speak to s and global ratings chief ratings officer. can take a look at the other interviews we have done here and the interactive function. not only will you be able to watch this live, you can see just at the right side as well. you also be part of the conversation setting up instant message. be sure to check it out at tv . this is bloomberg.
the headlines. barclays bank and four former executives have been charged with conspiracy to commit fraud. the fraud office says the former ceo and the chairman of thinking and the next wealth chief face charges along with the bank itself. apple is claiming that qualcomm is offering an illegal business model. it accuses qualcomm of trying to monopolize the wireless chip game. every phone cut of sold whether they have all conscience or not. everys at the heart of iphone apple has ever sold. generation will be built not in mexico but in
a 8:30 in singapore, just half hour away from trading in the lion city. we should be there. >> you are watching daybreak asia. let's get to the first word news with paul allen. the msci has approved a mystic shares for inclusion in its inch market indexes. it will give the almost $7 trillion mark and bigger role to 401(k) retirement plans. 222 shares will be included.
when you do all the computations on the number of shares and the market cap and you look at what could investors put into the market through the shanghai and shenzhen connect program of hong kong, the feeling was restricted. able to dohat we are is spend time with regulators as well and they work with us to see if we can get it done in one step. obviously our announcement is in two steps so we leave enough flexibility. >> msci has held up on classifying saudi arabia. they have been added on a watchlist for potential emerging-market status. that is an immense achievement. argentina will remain a frontier market for another year while
nigeria will not be reclassified as a standalone market. theresa may steps into a new political reality with the heavily rewritten legislative program that is heavy on brexit and light on controversy. rarerks the start of a two-year parliamentary session. the hold event will be overshadowed by the question of how long she can cling to power. the new south korean president says he would like to draw the north into talks and meet kim jong-un before the end of the year. they say he must play a larger role in the regional geo politics. he said he shares president trump's desire to resolve tension of the divided peninsula. >> kim jong-un is not of rational person.
president trump once even mentioned he is willing to talk with kim jong-un over a burger. you mentioned it would be an honor to meet kim jong-un. i believe president trump what much further than i did. isthe belgian prime minister to convene the national security council after a terror attack. shotcutors say a man was after detonating a baguette central station. the bomb squad carried out a controlled explosion on what is said to have in an explosive else. no one was hurt but it continues a month of violent events. i'm paul allen. .his is bloomberg are in >> we are seeing quite a bit of red on this screen. oil pricesammy with as well.
that could hurt the rest of the market. >> it looks like there could be little it helps markets. overnight weakness and commodities, based metal copper following almost 1%. on, a look at what is going following a most wanted a half percent there. -- almost 1.5% there. numbers for export the first 20 days of this month coming out better than expected, that is not sitting the cost be on a positive track, down about .9%. the countryat space. we are seeing nervousness. that drop in metals probably weighing on the aussie, which is down .2%.
111.30.eeing the yen at take a look at what is going on with sydney's shares. the indexes for the first monthly drop. that is knocking down energy shares over 2% this morning. least 2.5alling at are sent to this morning. we are seeing some slight recovery. still the broad tone here is very much weakness. >> thank you very much. an early look at the markets. of course oil and big info. the likelihood of another federal reserve rate increase, a rift over the need for rate
hikes in an economy that was hit hard by brexit concerns. we also heard the bank of japan in those minutes saying they are far below target inflation. fed raising its key rate last week. forecastingave been a september hike. that is less likely. saying he fed voter wants proof inflation is rising. he said he are made remarks think this on monday out in san francisco. he sees 2% gdp growth. that is kind of modest. he is willing to be patient. been notablyhas sluggish in the united states. for those ofll bad us who went through the 70's. getting to 2% inflation has been
uneven and sluggish. >> on the other side of the policy debate, the president of the boston fed takes there should be for rate hikes. in a presentation today that keeping rates too low to long risks financial instability. another thing to put on the scale is oil. oil entering a bear market. had the market if oil prices keep falling. they do seem to have shifted a bit. you can see here the odds of september 23 hike are down 16%. if we want to move out to december, you can see the odds of a hike are only 36%. mark is not convinced there will
be a third rate hike this year. evidence -- if the fed can wait until december to see if the economy has picked up and that is to warrant eighth third rate hike. a lot of the fed forecast are looking for that. >> it is a much different story with the bank of england. these calls for a hike when inflation surges and exits talks begin. swinging in a very definite speech today. he gave the brexit warning. negotiations are just starting and we don't know the full impact. it is not time to hike rates. eight members said we need to hike rates right now.
mark said he can understand the difference in opinion. in the coming months, i would like to see the extent to which weakened consumption growth is offset by other components of demand. more generally, how the economy reacts to the prospect of tighter financial condition. and the reality of brexit negotiations. let's take a look at what the bank of england hawks are focusing on. we have a bloomberg chart for you. you can see the yellow line the 2% target. the headline inflation is at 2.9%. the hawks are saying -- kristin forbes gave an interview on
monday making this point. she will be stepping down from the bank of england in july. what is the follow-up on financial services? this is a very important question. speech, paul allen saying that is a big deal on wednesday. they did not change much in terms of policy. say they need more upward momentum and will do everything they can to get it. >> meantime, ford is doubling down on the ability to build the iconic small car. steve this in something cost-saving move and a pretty risky one. >> i have been covering this
issue for a while. they built a big automotive manufacturing base. when were they going to see that and export them to the united states? it is a potential timebomb. president record is saying that apple builds in china. ford is an iconic american brand. ford is taking a bit of a gamble. they say they can save up to $1 billion moving production to chongqing. other automakers have tried. they have exported a few said and's. buick is a big brand in china. numbers.e
168,000 in 2016 alone. those numbers are down about 20%. those shift more to the suvs. savings looking at cost to offset. >> they learned from tesla saying they are close to reaching a deal to halt production as well. >> certainly seems that maybe it is the start of a trend. there is not a backlash. the president is going to weigh in. >> he has not commented about this. he did excoriate ford. mark fields move to mexico to build the focus. the new ceo is going to ship to mexico because of those cost savings.
of course the commerce secretary saying the chongqing plan shows how good the companies are in terms of geography. also ford commented on the potential threat for the trump administration during that border tax. thatsay they still believe cost savings will offset that. they have been a global manufacturer for many years. these are state-of-the-art modern plans like anywhere else in the world. coming up, more on today's historic decision to decide -- to include chinese shares on it indexes. this is bloomberg. ♪
>> this is daybreak asia live from hong kong. >> back to our top story. let's assess the market reaction. we have an asian for polio specialist. before this decision was made, where were you? >> this increase chances to 70%. that they have a stock connect, obviously this gave them a bullet to actually pull this through this time around. >> now what? >> it is a waiting game. we have to wait until next year. thatey thing right now is it will only be large caps in the benchmarks.
when they invest in both msci indices, you will assume there is mid-cap stocks. int is why you have a run stocks over the past couple of months. they were actually underperforming. once we can actually get potentially relaxation of the overall limits on the stock connect, then we could actually start to see the caps incorporated into benchmarks soon. >> the significance of this moment, isn't being overshadowed by the offshore markets? offshore rallyis playing catch up here when it comes to the te ratios. betweeneeing that gap offshore trading and onshore at the highest since 2014. do we expect this premium to narrow even more?
>> it could. the way we look at it is they are both trading roughly around 1.7 times. they are both very similar. they were trading about 60% more expensive. a lot of stuff has collapsed as a result. look at your today's numbers. asia worse than basically every market. we think potential with this, there are going to be some opportunities. there are some mid-and small caps which investors should look at. >> as you mentioned, the asian market kind of does its own thing. retail driven and a herd mentality. how are you going to sift through all of that? >> you have to go bottom up. it is very much on valuations.
only about 1.7% exposure right now. they're are being owned by foreign investors. you have very limited foreign participation. now with the shares incorporated, things have changed. a couple years ago what happened was you had people who were just asking the 101 of these companies. now that has changed. people are focusing on how you will increase your cash payout. how are you going to increase overall margins of opportunities, how you will increase topics. these are all things we are hearing now. >> what's do you focus on that? the shenzhen side of things? more reflecting where the chinese economy is going? >> initially we are still
looking more at shanghai because it is cheaper. shenzhen, you have the time x and a lot more of the tech stocks which are still quite expensive. an overall evaluation standpoint, the larger caps. >> i want to bring up a chart we had brought up with henry fernandez where it shows the kind of concentration of asian shares going from 50% seven of juneo to now 62% as 2017. what do you make of that? is it too concentrated? >> it could. that is a situation where once asia is included, you might see china as another japan where you might exclude china out of that benchmark and have it by itself. china is the second biggest economy in the world and has over 10% of the market cap.
the second-most heavily traded work it in the world. it is very important to start seeing china as a separate investment. includedecision to their shares into the watchlist for possible inclusion, they have been missing out on the rally. seeing the saudi stocks, a lot of people buying into this decision. 14.5% for saudi stocks. could shooting this up to 16 after this decision. do you agree with that? >> if there is a short-term rally. you see caught are ready in the back -- in the benchmark. cheaper.s are even bottom up, we still have more difficulty finding good stocks there. wait until next year.
wait until next year to see what happens. there can be some potential there. for the moment, there is a lot more opportunity in asia. >> thank you for joining us. more about this decision. we have some breaking news through the bloomberg. the local station here is said to become a senior advisor to holdings once he retires. this is on the back of a wall street journal story saying he is planning to retire in the near future. it is some type of timeline. that is another headline coming to you. >> here's how the shares traded yesterday. you can see them just slightly lower.
we will see if there is further reaction. expected, by ways giving his age and how much she has accomplished. been a big plan here already in place. he will announce when he decides to retire. we still have to hear from him officially. we will round of the stories you need. be sure to go to dayb on your turn oil -- terminal. be sure to check it out and customize all the settings you want. this is for bloomberg subscribers only. this is bloomberg. ♪
>> this is daybreak asia live from hong kong to. >> alibaba's jack ma says he is not trying to compete with amazon in the u.s.. alibaba wants to become a platform and not just an e-commerce company. >> amazon is a great company. they have a fantastic job in america and the world. they are an e-commerce company.
we help others to become e-commerce. we believe every company can be amazon. we try to empower the small business so they can reach their customers. we try to empower the companies with logistics so we can deliver things quickly and cost effective. they can easily receive the money. this company, we made so much that in the past few years we think this is all because of small business. want toy we made, we ensure that we have the infrastructure of commerce. we should help not only the chinese companies, but the global company.
america,ibaba come to we go to our ceo today in europe and we have a lot of colleagues in southeast asia. we have not globalized alibaba. we are globalized commerce. e-commerceake sure infrastructure, the logistics in making sure everybody today can microsoft,h amazon, ibm, this is what we want. >> that was the always colorful alibaba chairman jack ma at the gateway conference in detroit. bloomberg markets is up next.