tv Bloomberg Markets Asia Bloomberg June 20, 2017 9:00pm-10:01pm EDT
asia. mark carney's there is no rush to raise rates. ma saying china will drive the global economy for decades, urging america not to miss the boat. more reaction to the msci decision throughout the morning. it is a question of locally traded a-shares comprising as of global emerging markets gauge. that's right. about howen talking these china large-cap companies have been outperforming the small cap. #123 on your bloomberg.
you can see these are the big airlines,c, take among those that will be added for a-share and collusion. capquestion is this premium gap between- a-shares and h-shares. as this move gets underway, we will see the valuations in shanghai come down to match the global level. let's get a look at the markets ahead of the china and hong kong open. these twin the stories, capital maycerns rotate out of other emerging markets. saying goldman sachs korea, taiwan, and india may see
their benchmark waiting reduced. there could be limited impacts onlyrean stocks given that takes place next year. when we look at the reaction in asia, it is driven by oil markets. crude tumbling to the lowest since november, dragging on energy producers, as well as that base metal drop. sydney down there. japanese stocks snapping a three-day rally. adding toe yuan speak on hawkish fed the ringgit. a technical strategist at bank of america merrill lynch says oil is heading into the 30's.
this level close could indicate more bearish tones for new york crude. it looks like we are on that path. are $40.65 andls $37.20. rishaad: let's join paul allen for first word news. paul: the belgian prime minister will convene the national security council after an attack at a belgium station. a man was shot after detonating a bag. the bomb squad carried out under a controlled explosion. dallas fed president robert
kaplan says he is glad about the interest rate hike and is willing to be patient. however, he says he may be more skeptical about getting the neutral rate to 3% in coming years. he says inflation is sufficient enough to take the slack out of the labor market. >> inflation has been notably sluggish in the united states. that is not all bad. getting to 2% inflation has been uneven and sluggish. a survey by the pboc says bankers and executives are more positive on the economic outlook than last quarter. the gauge of confidence rose for the banking and business sectors. more households are betting on a further rise in property prices. follows signsood of economic stabilization in may. global news 24 hours a day powered by more than 2700
journalists and analysts in more than 120 countries. this is bloomberg. ,aidi: chinese equities mainland equities, going global after the msci agreed to include them in its indices. china's $7ll give trillion stock market a bigger role on the world stage, and henry fernandez told us he has the backing to include more eligible shares. 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. rishaad: let's discuss more with tom mackenzie in beijing. they did not disappoint this time. tom: that's right.
they increase the number of stocks we had been expecting. 169,d been focusing on down from when they were looking at 448. 222.increased it to msci saying there were a number of factors that fed into this decision comes some positive moves from chinese regulators. focusing on the connects, but moves around this when it comes to loosening up those requirements that have made things easier. msci saying amongst institutional investors, they did see strong support for this. what it means now is that this will be implemented at some point next year, the first stage in may, and later in august.
this is a step-by-step process, and they are looking potentially further down the line to include mid-cap stocks. that will depend on more moves in terms of the opening up and reforms we have seen in china. by msci could be something of a catalyst to see more openness and more moves to reform the capital markets. this addition of 222 large cap's, a bit more than what we were expecting, but less than the last proposal. a sense that this move is largely symbolic, and actual implications is a long road a head? is a symbolic move, but that does not mean it is any less important.
the investor basis seemed to think it was time. we had a story earlier this week, china is nearly $7 trillion, almost a 10th of the world stockmarket, and to not be in this index, everybody thought it doesime was so maybe not mean a huge amount right now, but heading for something bigger down the line. from a market structure point of view, is this a game changer? is it at the same time like the yuan inclusion in the basket? is it actually box ticking in a way? >> it could be a little bit of everything. the stock connect with hong kong increasingly are game changing. they are allowing the world to whicho china in a way in they were predicted to do so. be on sure.ed to
you don't need to be part of the chinese stock market to be buying or selling these stocks. that will be a change. henry fernandez did mention that there are daily quotas, daily limits on how much trading can happen. he was hopeful those get lifted. lifted, who knows how much you could see each day. haidi: this fits in nicely with the year of political consolidation. what does it say about beijing's reform efforts and what is still left to be done going forward? you can expected to be touted by the leadership as a concrete example of opening the financial markets as they have been long saying they would do. many skeptics will say it is a piecemeal approach, particularly ,round the yuan, the renminbi whether they have taken a step back on that. others say it would help internationalize the use of the
renminbi, something chinese policymakers have long wanted to do. these are value dominated shares in yuan, so that may be a factor. oferally, i spoke to the ceo china asset management company and an editorial board member on the msci. he said this was a tough decision to work out, a thatenging decision, but it is a historical milestone for chinese markets and shows the confidence in chinese regulators from foreign investors. this as a potential catalyst for further reforms down the line. opaque market,an regulations in terms of ipo's. you still have to get approval from the central government, so still a lot to work on. rishaad: thank you.
haidi: the latest business flash headlines. repeated his view that globalization is positive, saying it should be expanded, not rejected. speaking to charlie rose, he said 20,000 companies are using alibaba in california alone and china will be the engine for development for the next three decades, and it is vital foreign companies don't miss the boat. >> u.s. domestic consumption in
the past 30 years was the engine of the global economy, and i told people at that time saying that it you missed the over 10 in the of selling your products to the usa, to europe, you may iss the chance, and today want to tell the people that if you miss the opportunity of selling your products to china, you will miss the future. state ownedna's sinochem considering listing its .il related business the listing would be in line with president xi jinping's reform china's bloated state enterprises by the introduction of foreign capital and mixed ownership.
haidi: toshiba is in the last stages of selling its chip unit. the board will review the remaining offers. a bank consortium has put down $19 billion, slightly less than the bid from broadcom. back to our's get top story, msci's decision to include chinese stocks on its .ndices is this a game changer or the start of the game being changed? >> i think it is both. because now changer international investors will have direct access to include
a-shares, already the second highest in the world into their global portfolio. it is also starting a continuation of a game changer because this will be another milestone in the internationalization of capital markets in china. integrate, and the currency will become more global. it's been contended that this is box ticking. the argument is that the yuan has become less internationalize than it was before. what is your view? >> one has to take a long-term historical view based on where we are and where we are today.
china was included in the special drawing rights a couple of years back, and with this development and further development, with more international capital flowing into china, there will be more responding capital flow out of china to join the global capital markets investment capital flow, moreou have to give it time for this to way, positive dynamics to continue. haidi: there is an interesting from an analyst who covered and called the boom and bust of the chinese stock market. he says it is not clear whether we will see international norms affect the trading of a-shares or vice a versa. what you have seen with the stock connect is some not entirely legitimate trading practices for a-shares for into effect and cause swings in the hong kong market. how do you view that?
>> the a-shared domestic market is nearly $7 trillion, trading value is very high, but it is predominantly occupied by retailer or retail-like investors. china capital market still needs time to mature and develop. this type of msci inclusion of domestic a-shares will go a long way to say that there will be international long or short international equity investors coming onshore and more global practice that is over time gradually accepting locally, and i'm sure as someone mentioned earlier that it will act as a catalyst for chinese domestic a-share capital market to become more like mature international capital markets because the size is here, the variety of investors are all joining this chinese capital markets, and china will become a true
globally diversified investment portfolio and there will be one in which youlio include china have the right kind of percentage. phrase is with time. how long do think it will take given we were here this time last year, one step forward, a couple of steps back when it comes to market liberalization in making these reforms that beijing was meant to make and it feels like msci compromised more. i don't think it is one step forward, several steps backwards . i think it is 1-2 steps forward, then maybe a half step sideways, then pause a bit, then over time, china another 3-5 years, a lot of things will happen. domestic markets will
become more international and the will be more capital outflows in an orderly manner. this two-way capital flow will more important in the scheme of things. if you take the 3-5 year time horizon, we remain cautious the optimistic. rishaad: a cynic might say this timing given that debt problems are worsening in china. you can certainly take that view, but the debt problem is domestic. rely ones not international bond insurance, international creditors to a material extent. chinesenow that the government and the state-controlled financial system by and large is on the whole has all the means at its own disposal to resolve this.
particular msci deals with equity markets, a-share stocks which in and all asset class type allocation, it should not become so large and so important and now a-share to be included in any truly globally diversified asset allocation portfolio, so that is what is really happening, and from a violation point of view, msci -- yeah? haidi: go on. >> go ahead. seeing the forward multiple of just under 12 times, isthe 300 index is cheaper than stocks traded offshore. haidi: i was going to move on from msci and ask you about your china business and how that is going.
we have these comments from the pboc governor saying detecting domestic firms and banks from outside competition suggesting there might be further opportunities for opening up. how do you view the environment for international financials and china at the moment? enough.inly it is not as we all know, the total foreign participation in the domestic capital markets for a-share market right now is 2%, similar percentage for the whole foreign financial institutions in the whole of china domestic financial services industry, so going forward, we have been hearing chinese regulators saying they would like to see to increaseforeign to 5% and beyond. that would effectively mean doubling what ever foreign investment holding in china that the foreign business that the revenue generated by controlling
the financial institutions in china, so we have a long way to go, but the total size of the domestic market aside, even at a few percentage on one hand means the doubling of the foreign participation. on the other hand, in absolute terms, it will translate into hundreds of billions of dollars. about your business, how are you doing with customer acquisition? what we are best at, which is analyze the market our clientlect segmentation, and acquiring those clients to expand our business. doubling our way to our total number in china by 2020 based on 2015 number, so we are and limiting china expansion strategy right now. rishaad: what about ease of business?
how is that currently? on,or the business we focus investment banking, which we were the first full-fledged foreign securities firm in china about 11 years ago, so we are doing well, especially with msci inclusion. leading international broker to bring foreign capital to china, and now we see other china intoing inclusion and for the high net investor overseas and serve the leading institutions and high net worth individual onshore, which is expanding. by expanding onshore client days , onshore client acquisition, we are able to serve our international and domestic clients and a cross-border scenario, bringing the best expertise to the the international investor and bringing the chinese investor abroad. we are enjoying some of those
sweet and nietzsche spots. -- niche spots. anticipate when you will be allowed to hold a majority stake? >> as you know, all things in china take time. we are exploring these opportunities. i am confident over time that we will be able to bring good news. haidi: thank you so much for your time. >> pleasure. up, we talk more about msci, the implications when it comes to hong kong stocks particular. also regionally, do we see a rotation out going into other emerging markets around the region? taking a look at the hong kong ipo market in particular. could it be revived? why sinochem could list its oil
rishaad: a rainy gain in hong kong. trading,o the start of free auction showings a decline. a 100 year bond being issued by argentina. oil in a bear market. story, a-share is into the msci indices. tom rishaad salamat coming you from bloomberg's asia headquarters here in hong kong. haidi: i am haidi lun in sydney. we are hoping a-shares will
provide of those. let's get it over to sophie. have that msci dream coming true for china. let's show you how markets on the mainland are opening. futures indicating a stronger open. sci 300 up .3%. the shenzhen rising for a third straight day. h-shares down .8% and the hang seng falling as well. the big picture is whether we might see a shift towards chinese a-shares. this could prompt investors who have been zero weighted in china to reconsider their default positions.
what that means for other equities markets, goldman sachs saying korea, taiwan, and india might see some diluted weightings given the day-shares inclusion. one analyst sees limited impact on korean stocks. has fallen about .6%. eugene securities is taking that to the slide in oil. have this discussion on whether mid-cap stocks might be included. we had henry fernandez telling us earlier that he as hope all mid-caps could make the grade at some point. msci's managing director said 450 stocks large and mid-cap could be included in the future, and that will pump up inflows to
about $35 billion. broadly speaking, some analysts don't see inclusion moving the dial on capital flows. rishaad: thanks a lot. right, let's join paul allen for first word news headlines. see i approved chinese domestic shares for inclusion. approved domestic shares for inclusion, almost as $7 trillion market, a bigger role in etf's and 401(k) retirement plans. be included,ll comprising .7% of the global emerging markets gauge. >> when you do all the computations, the number of shares in the market cap and all of that and you look at what could investors put into the through the shanghai and
shenzhen connect program with hong kong, the ceiling was restrictive, so therefore what we are able to do is speed up the regulators and see if we can .et it done in one step our announcement is two steps just to make sure we have enough room. him as cia off reclassifying saudi arabia, msci has held off on reclassifying saudi arabia and argentina. nigeria would not be reclassified as a standalone market. the news south korean president said he would like to meet kim jong-un before the end of the year. korea must play a prominent role in regional
politics and a presidential visit to pyongyang was a good idea. he says he shares president trump's desire to resolve tensions on the peninsula, but dealing with the north is tricky. >> kim jong-un is not a rational person, but president trump even mentioned that he is willing to talk with kim jong-un. he has another point he mentioned, that it would be an honor to meet kim jong-un, so i believe president trump went much further than i did. paul: prime minister theresa may steps into a new political reality on wednesday with the heavily rewritten legislative program big on brexit and light on controversy. the stripped-down queen's speech will be without most of the usual pageantry as it starts the beginning of a two-year parliamentary a sessio session. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg.
rishaad: the black stuff tumbled into a bear market over concerns of a supply glut. i want to talk about this bear market. #269 shows says what has been going on with the oil price. $54 in february, and we have gone down just to below $44. -- move represents a >> it's almost like 2016 again. supply is the issue here. rishaad: this is the rig count, the blue line, giving you an idea of supply and essence. >> it is hanging around, the rig .ount is up
u.s. output 3 million barrels a day, so all these bearish factors coming out of the u.s.. when you combine that with libya and nigeria, exempt from the cuts, the biggest gains from opec in the may were from those two countries so it is coming from both regions, opec, the u.s., and putting a great amount of supply on the market. rishaad: and no reaction in the gcc with qatar. >> usually you get a spike. situation,iranian qatar, missiles in syria from , all this tension and no
reaction to the price. it shows you fundamentals are front and center. will not bedi pleased with this. a lot of these gcc countries are not happy. pressure more happy than perhaps most. and russians have been cutting come so good for the market, but compliance may become an issue. prices start to slip. you have less compliant countries like iraq. my guess is they will take an opportunity before the price slips further, so compliance may slip if prices stick to this low level. itdi: how significant is that we are seeing this fall back into bear market territory as we get into the summer driving season in the u.s.? where wes the period
would see stockpiles declining at a much more rapid rate. have beenuppliers rising, so products rising, marginal declines, a real concern for the market. there is an expectation that it would help to drain u.s. there is that are demand seen in the second half. it is not capturing the attention of the moment and the bears have a hold. haidi: everyone from goldman's saying you can expect to see another leg down if the u.s. stockpile situation does not change. possibly considering a hong kong listing of its oil business. that?e know much about >> it is an asset package that a valuation as high
as $15 billion. there is no final decision on what assets could be included. 2018, bute an ipo in is part of the reform to those state owned enterprises, trying to introduce some outside capital and mixed ownership, but it is early days and we have yet to see that have a move. haidi: watch and wait and see. thank you so much. coming up, time to compromise. our next to guest tells us why a brexit deal will work after all. that is just ahead. this is bloomberg. ♪
$1 billion by shifting production of the next focus to china from mexico. manufacturing is expected to begin in the second half of 2019. it is the first major decision made like the new chief and marks a complete break from the strategy of mark fields. president trump criticized carmakers for building cars overseas. haidi: the apple -- qualcomm patent row now claiming apple is operating an illegal business model. it accuses qualcomm of trying to game chips and license its technology so it pockets a cut. it says its innovations are at the heart of every iphone that apple has ever sold. rishaad: the world's biggest
maker of construction and mining equipment said sales were up 8%. that is the best performance since 2012. asia giving a bit of impetus, an increase of 49%. for theerican shares up first time in two years, shares down .5%. this year'stion is major conundrum for policymakers around the world, the boj trying to stoke the fires. the boe has watched its search past that 2% line thanks to sterling. let's get it over to kathleen hays in new york. go over these boj minutes from april, did we learn anything new? >> i don't think we learned anything new. we have these minutes underscoring the key challenges the boj still faces.
in april, boj at left every aspect of policy unchanged. they anchored the 10 jgb at the long end of 20, and continuing to buy bonds to achieve all of that. one thing that emerges from the mentum from the 2% target was not strong enough yet. let's look at the details out of these minutes. not surprisingly, the vast majority saying the risk that are the economy remains skewed to the downside and it was appropriate to pursue this path for monetary easing which they have been doing since governor kuroda took office, and most ateeing that stable rates the long end show that yield curve control is working. story comes from our bloomberg team in tokyo, where they talk to a former boj
isicial who said the risk when the hawks leave in july and there won't be enough debate to keep policy on track. we see a lot of agreement on the surface, and in april, a little more disagreement below the surface. they willawks leave, be falling in line firmly behind governor kuroda. rishaad: having a look at mark carney. he faces a bit of a nightmare. three members of the committee wanting a rate hike. also, inflation surging, brexit talks beginning, the pound taking a kicking overnight. now he has been opening his mouth to change fate i believe. >> i think mark carney after not afterng for a month
theresa may called for that snap election, so he came out swinging to push back against the three dissenters from last weeks policy meeting who wanted to hike rates immediately to remind everybody that there are big risks hanging over the economy from brexit. that is why he disagrees with that. weakeruld like to see consumption growth offset by other components of demand. where wages begin to firm and how the economy reacts to the prospects of tighter financial conditions and the reality of brexit negotiations. >> it is understandable why those three dissented, u.k. inflation, two point 9% far above that 2% target. one of the hawks leaving the boe the summer saying there is a cost of waiting too long, and it expectationsation
affected by the weak pound which has boosted prices. brexit talks will continue. , the queens ahead speech, where theresa may will perhaps soften brexit positions filled out by the queen herself, so a lot more coming up on brexit. rishaad: thank you a lot for that. indeed, the british election lessening the chances of the so-called hard brexit. a economist from pine bridge investments. sure it will change the underlying dynamics of the negotiations. it is an internal issue. the supportnd in she may have from parliament may be harder to achieve. the negotiations will run
parallel in a different universe. have a package of the end of parliament that they can vote on , but that is two years from now, so a lot of things could happen between now and then. rishaad: you are reasonably optimistic long-term, saying britain will pay a price for this, but looking ahead, it could make hay if there is good leadership. >> that's true. i am more optimistic on the negotiations themselves. that is talk in the media is too bellicose, too belligerent. i think we will find out how the bill will be negotiation , and it can set the table for the rest of the negotiation. it shows both sides trust each other and can compromise and the thiswill flow quicker, so first issue is important in
determining whether this will be a good negotiation or bad negotiation. there has been a lot of politicking before going into this and positions have hardened it how hard are those positions? -- hardened. how hard are those positions. ? >> elections in the netherlands, france, and germany still coming , and italy as well, although the french and german ones are the most important, so you had to have a certain toughness to get through these elections, but now it looks like angela merkel will be elected easily, you see the europeans softening their town. the fear that other countries will do the same as totally overblown. no one else will do what the u.k. did. election --ime
italian election, does that suggest you are not concerned with the rise of the d five-star movement? -- of the five-star movement? the populist wave has not worked at all in europe. people have taken their lessons from brexit and the trump elections, and that has weaken the populist movement in europe significantly. the italians pose somewhat of a risk, but no one will leave the eurozone without creating a massive economic crisis. so nobody will leave the eu. that risk is completely overblown. haidi: moving on to the boe, mark carney breaking his silence and articulating what a lot of people have been thinking, why
would you be in such a hurry to raise rates given the uncertainty imposed by brexit negotiation's? were you surprised that there were such divisions in the last meeting? >> i was indeed. i was surprised to see those three dissenters. u.k.kes no sense for the and the boe to raise rates. before, inflation in the u.k. has risen sharply above 2%, three percent, without the boe contemplating raising rates, so very much the same situation right now. haidi: if you were a central banker, you would hold and wait to see how it plays out? it's not just brexit. it is also a scenario that most other central banks are looking at where you have this wage growth conundrum coming up. >> that's true. what i find interesting is the
fact that all the central banks face different problems. there is no global issue that drives monetary policy. the boj cannot create inflation. the boe has too much inflation. the fed has enough inflation and is raising rates, so everyone is doing something different right now and there is no common thread. rishaad: is there really too much inflation? how much is down to prospects for more of it because of sterling? why even have this debate about raising rates? it will not make any difference. >> it is only fair to have the debate. rishaad: it is nonsense after nonsense. >> i do agree with you. advocatingi'm not raising rates. inflation down to 0% because of commodity prices. everybody made it into a deflationary problem.
it,ral banks cut rates into but it was something that would never last too long. the undershooting overshoots are overdone. notralia, canada, but it is going up to a level where we need to see accelerating rate hikes. rishaad: anyway, thank you very much indeed. the chief economist at pine bridge investments with his thoughts on brexit and beyond. a lot more to come right here. this is bloomberg. ♪
governor has been more communicative and telling markets what he has been doing. he learned his lessons from before. three times before, msci looked at china, and now the situation has improved. and the prospect of greater reforms in a politically sensitive here, there are hopes of a faster pickup when it comes to structural reforms and overhauls, but .7%, a small waieighting. there's a lot of things like greater accessibility come international standards, the usual lot if they want more shares included. shanghai flat, shenzhen up by .1%, hong kong firmly in the
♪ announcer: from our studios in new york city, this is "charlie rose." david: good evening. charlie is traveling. i'm david leonhardt. we begin this evening with a look at politics. controversy continues to grow surrounding president trump's alleged involvement with russian interference in the 2016 election. yesterday, jay sekulow, one of president trump's lawyers, said trump was not under investigation by the special counsel. his statements, however, contradict the president's own tweets, current confirming he was a target. last tuesday, jeff sessions testified before the senate intelligence committee.