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tv   Bloomberg Markets Asia  Bloomberg  May 23, 2017 9:00pm-10:01pm EDT

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♪ haidi: i am haidi lun. this is "bloomberg markets: asia." ♪ haidi: the warning lights flashing, moody's cuts china, growth stalling. struggling noble face pressure from a suspended, now reports of a potential savior walking away. president trump's budget proposal would hurt the people
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who put him in office. critics say it is a work of fantasy. ourre continuing to watch , moody's announcing it has downgraded its rating on china. for comparison, were looking at the same rating help by saudi arabia, israel, estonia, and japan. take a look at this chart. it encapsulates moody's reasoning for this downgrade. debt to gdp soaring. 280% in terms at of the debt to gdp ratio, an increase from 240% from 2016 alone. you can see the diversions when it comes to gdp growth stabilizing, easing, but debt
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continuing to grow. it expects the financial strength of china will be eroded in the coming years as a result of the economy-white debt and built up. slowing, andially even though you have financial reforms, deleveraging, particularly the financial sector, moody's saying that will not make a difference when it comes to this constant increase in contingent liabilities held by beijing. we will continue to watch that story. singapore, taiwan, malaysia coming on line. we are really watching the aussie dollar falling over on that news. take a look at what we are seeing across markets in asia. have the aussie dollar
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falling .2%. this after barely budging in the last couple of sessions. when we are seeing equity markets broadly in the green, the nikkei leading gains, not surprising given to sessions of , althoughen week has today we are seeing the yen clawing back of some losses. the korean kospi gaining, while the asx 200 is up .2%. when it comes to singapore, up .2%. noble group making headlines throughout the day. they plunged more than 28%. right now falling more than 10% at the open in singapore. noble struggling for their lives in a sense. we saw s&p saying it could see a default within a year.
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a lot of this as we see more optimism with the markets filter through wall street, pushing towards record highs. two stocks you need to keep an i eye on glencore, a takeover bid. ly traded in hong kong. iny could be buying a stake proton. the malaysian owner of the carmaker had approved the stake sale. ,he offshore and onshore yuan the offshore fall as moody's downgraded china, clawing back some losses, but the onshore yuan against the dollar is not
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doing much. against the basket of currencies, they have fallen to multiyear lows, but mark cudmore says the impact of moody's downgrade could not be felt for that long given the chinese consumer unexpectedly has more cash at their disposal. that could give a more positive outlook for the chinese economy, even as we see a bond squeeze. when it comes to this chart here, because we are seeing the onshore yuan falling against this basket of currencies, it is falling, but very gradually. that could stem the risk of outflows and lowered the shock of the impact that this has on the broader market. stability is the name of the game when it comes to the
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yuan. thank you for that. let's get first word news with paul allen. paul: veteran msci ceo has told bloomberg that the inclusion of china's a-shares in the index next month is no means assured to. china was rejected for inclusion last year and is awaiting the msci's next classification review on june 20. fernandez says the timeline is tight for all that needs to be done. a-shares rose strongly through march, but have since declined. hard, process has been and there is still a lot of issues to resolve in a short time. mnuchin is hiring, trying to fill top positions by recruiting financial industry figures with job titles that don't require senate confirmation. aides withd for top
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the title counselor. the senate won't vote on any of them. administrations on both sides have used the tactic in the past. u.k. police say it is too early to know whether monday's attack in manchester was part of a terror plot. bombermed the man as the , and the times says he returned from libya three weeks ago. the so-called islamic state groups said he was linked to them. it comes to weeks before the general election come and all campaigning has been suspended. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. haidi: investors have been by governorpeeches kuroda and ben bernanke in tokyo today, but china has stolen the spotlight after that unexpected downgrade by moody's and the last hour.
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kathleen hays is here with all of this. about the reasons moody's gave are well documented and well known. why the timing? why now? just ran to the details for us, so we don't have to go into those, but for anybody just tuning in, moody's cut china's rating. i would remind everyone that it "a" rating. they change the outlook from stable to negative. once you downgrade at that level , may be the outlook is stable, but moody's like the rest of the world's wondering what china is going to do with what some call its mountain of debt. that is what they cited in the following statement. ongoing progress will transform the economy over time, it is unlikely to further
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the subsequenth increase in contingent liabilities for the government." many china watchers still feel the government has more than enough reserves to step in to help companies and banks that have lent to them out of any trouble they might get into. that this interesting is not the only country in the world, leading country, with the same rating. recently our bloomberg intelligence team in china has been talking about the fact that credit expansion has been slowing in china. there is not as much our ring and rising debt, and there has been more and more restructuring. issuing, giving china a push, saying we are watching this problem, and maybe this is a warning to say, make sure you are addressing this.
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a small downgrade now, but something china has to address to stay on track for the future. haidi: right, let's move onto the previous story, which is top meeting of personalities in the central bank space in tokyo today. governor kuroda did not adjust the boj's goal to hit 2% within the time they wanted, but he talked about how hard it is to shift inflation expectations, as did ben bernanke. it is animal spirits, being able to shake this off after some years of deflationary expectation. was defendinge the bank of japan more or less. he said it is vital for the boj to pursue its target. higherve to get an inflation rate. he said restoring the 2% target would restore stability.
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is stillledge the boj some distance from achieving its price target. thatso acknowledges inflation expectations has fallen short. #eight 007, the green bars on the far right after many little red bars showing negative inflation come a core inflation, bars, andmall green you can see when you look at the breakeven, you can see how they felt sharply. they have started to rise just a bit, but still not anywhere near as high as they once were. also is saying that even he probably just did not think hard enough about their limits of monetary policy and how hard it can be to turn
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something like deflation into inflation. here is what he said. certainly did not get it all right. in particular, in earlier writings, i was too optimistic and too certain about the ease with which a determined central bank and conquer deflation, and i had little patience with the alternative view. ok maybe some sympathy for governor kuroda, trying so hard to get that 2% target and still so far away. one of the things governor kuroda talked about was inflation expectations. he talked about a falling natural rate of interest. if it is falling, it is harder for central banks to gauge where is the level of interest rates that will help boost inflation or hinder the inflation rate, and he noted the uncertainty about where the natural interest rate is now, including for japan , leading central banks to adopt unconventional, aggressive monetary policies.
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again, in defense of yield curve control, buying so many bonds that the government is issuing, which is under criticism in japan, but at the moment, egg, big support for prime ministers shinzo abe. giving his friend a pat on the back and a little encouragement. hand: a little helping always appreciated. thank you so much first thing on top of that story for us. china facing growing demand for better and safer food. we have a special report on an organic farm the size of new york city. next, a look at the turnaround plan at sony and the challenges the company faces to stay on top of the game. this is bloomberg. ♪
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haidi: this is "bloomberg markets: asia."
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i am haidi lun in sydney. a quick check of the business flash headlines. singapore exchange is nearing a deal that would encourage local startups to go public. under the agreement, the firmsge would help text and investors with the ultimate goal of securing a listing. it would allow sgx to engage earlier and allow for competition. the agricultural trader bunge jumped. glencore is an contact and finished the london session down. e jumped, taking the fire above $11 billion. toshiba and western digital are meeting on wednesday to resolve their dispute over the flash
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memory chip unit. western digital is ready to make concessions in order to retain its share of the operation. westinghouse creditors have dropped their opposition to a final bankruptcy loan, clearing the way for to receive $450 million to keep operating. sony's consumer electronics division now enjoys a dominant role when it comes to the gaming sector. the ceo told sony investor relations day that movies remain a hugely important part of the overall business. >> the picture segment remains an important business persona and we are increasing the urgency with which we implement measures to improve the pictures business. senior equities analyst at jefferies was at the event in tokyo and joins us now. take us through what the takeaways were.
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>> thank you. threeit of context, we years back, we used to be very skeptical three years back in february 2014. we upgraded sony when they exited pc and the other consumer electronics business started to shrink. they were focusing on streaming, games, movies, and music. they have done a great job to turn around, taking painful decisions to reach where they are. this year, the second time in the last seven years they reached the target level of ¥600 -- 500 billion yen. however, for the first time in the last three years, i have seen faint glimpses of the sony that was pre-2014. we did not like that company
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before. it used to double down on the consumer electronics business. oligopoly, but the consumer electronics businesses are fragmented. did notthese things make sense, but overall, it still looks good to deliver and exceed this year's numbers and grow next year. looks good, but there are some glimpses of something going wrong. down theybe five years track, the turnaround is complete. i want to throw this chart to see what the stock market has thought of this turnaround during his tenure. the stock has been outperforming the broader japanese markets, point, is but to your this the peak we are seeing? given that gaming is something they are so reliant on come are they a one trick pony and
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desperate to find another hit -- in the space gaming space? >> business could still grow because profit is what matters the most. peak after 2-3ld years of earnings growth. the most important is how do you unlock about you that is sitting in mobile where they have viable patents which could be worth more to companies in china they cannot sell their products locally. movie and music is similar, there could be strategic partnerships that unlock significant value. they may not want to sell that business, but a partnership with other companies could unlock value, and that is what could drive the stock higher. earnings growth will be driven music, and their
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strategy is looking very good. sense did you get the yesterday that he has had five years at the helm. done well to steer the ship in terms of the turnaround. what is his strategy next? will he go aggressively for growth or maintain and sustain what he has done so far? preferred thee company stay the course and focus on three or four business areas where there is an oligopoly or duopoly, like games , movies, and music. yesterday for the first time, i intent to grow the consumer electronics business again. if they go for that, there are serious risks out there. that is the one business that had destroyed the fight created by the group in the last 20-30 years. was bring inthing
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the cfo and give him nearly complete control. i would be worried if he takes a step back. haidi: thank you so much for oft comprehensive wrapup where sony goes from here after this turnaround. coming up, the budget blues, breaking down the proposal facing resistance from both sides of the aisle, being described as fantasy. this is bloomberg. ♪
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haidi: this is "bloomberg markets: asia." president trump's first budget proposal has been dismissed by critics on both sides of the aisle with $3.6 trillion in spending cuts.
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some of the biggest losers look to be social programs aimed at working-class voters who put the president and the white house in the first place. budget hast trump's gotten a mixed response on capitol hill. republicans give him more leeway. house speaker paul ryan said today that even though the budget itself is most likely dead on arrival that there are elements he is impressed with. for instance, republicans are focused on the fact that the president says he wants to balance the budget, something president obama did in something they want to drive towards. also, military and defense spending that they will try to incorporate in their version of the budget. democrats are far more skeptical, and so are many moderate republicans. in all likelihood, this bill does not have much of a life on capitol hill. what furthers that is the fact
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that the budget does include essential details like how the president's tax reform plan would play out, and those are the things that lawmakers are looking for guidance on, especially going forward with the president's legislative agenda. is aesident trump, this document to show his supporters in the country what he is passionate about them about also something we will hear a lot of democrats seizing on. deepwill look at these cuts, 40% to nondefense discretionary spending of the next 10 years and say the republicans in president trump want to cut food stamps, increase the cost of college loans, want to go after the social safety net come so while it is something that one not have a legislative impact, it could have a political impact going forward. was our white house
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reporter there for us. coming up, the route goes on. we ask about any hope of turning things around. that as noble fights for life. this is bloomberg. ♪
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delivers consistent network performance and speed across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. haidi: we are counting down to the china open. we are looking ahead to the opec meeting in vienna on thursday. there is a sense that producers are starting to converge in terms of reaching an agreement cut deal.oduction if it is six months, will that disappoint the market ?
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take a look at this chart. some of the players that could undermine opec efforts. most ofhad news that these producers are on board when it comes to extension of the curbs. a few may be prone to cheating, if you will. the other side of the equation is what happens to u.s. production. that is arguably the greatest factor in terms of undermining any effort and advances opec makes to stabilize the oil market. shanghai and hong kong, a crucial open, surprise news out of moody's. seeing thate not much of a reaction when it comes to equity markets. we are seeing the hang seng index lose ground and some downward pressure. reaction to the downgrade when it came to the offshore yuan, which fell.
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the hang seng down .2%. it is being dragged down by real estate stocks. this is interesting because we securities journal saying they could see tighter regulations for real estate finance when it comes to trust the businesses this year, so what we are seeing in this about .25% fall of when it comes to property developers and so forth. shanghaiomes to the composite, we are seeing further declines, now at the lowest level since october, but this has been a down trend for the chinese markets and a lot to do with deleveraging efforts in and so on,ncial risk and now moody's downgrading from aa3.1 it's not surprising given all
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the issues we happen shanghai. we heard the msci ceo fernandes saying in an interview this morning with bloomberg that there are lots of things to resolve before some of those innland stocks get included the msci benchmark, so what we are seeing is a huge lag when it comes to the emerging markets ,ndex before its inclusion which is surprising when you look at of stock markets like saudi arabia, which has been gaining ground before the inclusion. not just saudi arabia, but that is usually what happens before mscinclusion, but now in says shows will be limited to large cap firms and accessible only through hong kong, so we are seeing that reaction in the shanghai composite and its relative performance to the msci
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emerging markets index. yeah, a lot of news when it comes to china today, not least of which is that moody's downgraded, looking ahead to the msci decision. with get you up-to-date first word news and paul allen here in sydney. the philippine president has put a southern island under military rule after terrorists clashed with the military. visitesident is cutting a short to russia to handle the situation. martial law was last declared in 2009 by that then-president. the u.s. commerce department is pursuing new leads into the investigation of zte over the breaking of sanctions. republicans want the trump administration to identify the violatethat zte used to
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export controls. it was fine for passing restricted american technology to iran. i'll forgo has struck another blow for artificial intelligence, beating china's top player in the first of three games. by half a point, the closest possible winning margin. in 2015, the program be the top european player. the garyp blue kasparov in 1997. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. i am paul allen. thanks for that. moody's has cut its rating on the outlook saying will worsen as debt rises and outlook for growth slows.
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look atran is taking a the reasoning they gave, well documented and well known by anyone tracking china, but what are the implications? it is something of a slap on the wrist for chinese authorities that they aren't moving fast enough on resort, not tackling the buildup and debt, even though we have had a lot of rhetoric from authorities that they plan to rein in risk. downgrade was a reminder they better get to it. it is dramatic to see a sovereign get downgraded like this. it is the first time moody's has cut china since march 1989. china's external funding is much less than 20%, a self-funded
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economy largely speaking come so in terms of external creditors, not much of an impact. dampener. a we have been bond connect due to open between hong kong and the mainland china, so it is a reminder to foreign investors why you need to take a second look at china's debt market. haidi: that's right. a fourth go at msci inclusion, a sensitive political year, so interesting to see how the story plays out domestically in the headlines. it being a difficult or sensitive political year, given that it does appear external ratings agencies like moody's are trying to pressure beijing to do more to tackle its mounting debt problem, can they do more? it seems they are taking a cautious approach, and argue leiby to maintain -- arguably to tain stability.
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>> it remains an absolute engine for global growth, one of the biggest trading nations, and stability as vital, not just for china, but the rest of asia and the world, so there is a case to ismade that china prescribing the right medicine to its economy, but there are systemic risks, particularly on the corporate side of things. when you have a pace of credit creation outstripping underlying gdp, there will have to be a payback, and it will be a drag on growth, and the pain they are storing up is worse than if they were to do with it now. that is why we saw a change in language in recent months, in particular when we had president xi jinping saying china does need to get a grip on some of the risks in the system.
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there's a feeling that the authorities are aware of risks, but the reality is they can't pump the brakes too hard right now, at least not until they get past the national party congress at the end of the year. haidi: indeed. thank you so much for that. taking a look at that latest downgrade from the disease -- from moody's and the implications for china. noble group shares on the way down, again. the singapore session sing more losses after those deep declines following tuesday's 28% route. the latest triggered by reports that sinochem has pulled out of reports -- talks to invest in the company. it is still speaking with various parties. more, take us to the latest developments. this company has been imploding for some years now. are looking very
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difficult it has to be said. the company is under a lot of pressure. they issued a statement saying they were looking for strategic investors. they have mandated morgan stanley to examine strategic options, but that did not stop a decline in shares. they fell as much as 27% this morning at the open come the lowest level since 2000. they recovered a bit and are down 10% right now, but because the red and the ratings agencies have been saying this, that basically it will be difficult to manage over the next 12 months and they need an outside investor, so that is what people are looking at right now. that thereave heard have been white knights who have come and gone in the past, but let's act track. they used to be asia's biggest commodity trader. how did we get to this point? well that's true.
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back in 2010, they had a market value of more than $10 billion. they were asia's largest commodities trader, trading agricultural products, energy, metals, doing very well. were still rising in terms of prices, but then they , allegationsning about accounting methods, which the company denied, credit ratings downgrades, and when all that happened, they started into negative territory, so 2015, they announced the biggest loss ever. they turned that around with a rights issue and a sale of agricultural assets and some u.s. energy assets and made a small profit in 2016. at the beginning of this year, people were thinking we are over the worst, commodity prices are back up, and they sold some
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bonds in march, then suddenly you get this profit warning two weeks ago. apparently ending up on the wrong side of that coal that. we will leave it there, but continue to watch this story. not the last chapter four noble. for noble. going organic in china, what some entrepreneurs are doing to meet the demand for food quality. we have that special report coming up next. this is bloomberg. ♪
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haidi: this is "bloomberg markets: asia." leeco plans to eliminate 325
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jobs in the u.s. it has failed to his first demand for its products, which range from smartphones to smart tv's. fiat chrysler being sued by the justice department over claims that thousands of vehicles were illegally fitted with software that was kept hidden. the complaint alleges the software causes emissions dotrol systems to essentially what volkswagen has admitted to doing. protons parent has agreed to sell a minority stake of the struggling carmaker. approved as its stock was suspended pending an announcement. geelyvestment would allow market.ld in the asean
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china has had its fair share of food problems. mail it is introducing scale and technology to satisfy the critics who don't trust what is currently on offer. tom mackenzie has the story. tom: this farm could point to the future for chinese agricultural. -- agriculture. spanning an area almost the size in new york city come it is one of the biggest organic farms in the country. ofike the fast majority farms, this one does not rely on has to sides. it relies on water filtration and soil monitoring. that is in line with the government's push for a more ecological agricultural sector. he has run the farm since the 1990's when it cover just 15 hectors.
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few thousande to a sheep and takes and produces tens of thousands of tons of fruit and veggies. for organic is growing as people increasingly focus on food quality and personal health. bumper crops is hailed as a model business. the central government pushing for more high in food production as incomes grow and it has invested 500 million dollars. that is money that help to fund the wind turbine and a complex filter system. it is an approach that could be rolled out across china. >> so this can be replicated in other provinces, cities, and other varieties of food, that's
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something we have seen in other industries the government has invested in. china's government seize farms like this is part of the solution to producing large quantities of food that consumers actually trust. the country's numerous food safety scandals to just it is a change they cannot come soon enough. haidi: the question is, chemchina secure enough food to feed its millions? secure enough food to feed its millions? what you make of the efforts the government is making? back,you just look chinese agricultural industry development has lagged behind
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industrial and services, so at this point, china has come to not ae that while it is crisis, china needs to think of how to feed its growing population in the future. not's mainly coming from only a demand ankle, but a supply angle has china has to deal with more limited resources than many countries in the world. haidi: you say we spend a lot of time talking about the rapidly aging population, the way the chinese demographics will quickly turn japanese, if you will, but the drivers of consumption are millennial's and baby boomers. >> that's right. the world has been talking about china growing and aging becoming an issue, but baby boomers and millennials occupy more than 50% of the demography, and that is a
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key driving force for consumption. richer, also getting growing middle crass, urbanization, and all these factors are leading to a demand for a value product rather than fall you him. internet ande information, they are becoming more aware of nutrition value, wellness, health, and of safety and quality issues, so all these are driving demand towards more value rather than just volume, and that is where imports come in. haidi: you pick up on the imports 20 view, and that leads to my next question, where do you see the greatest inortunities for investors being able to tap this extraordinary demand? now, it imports
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most of its animal protein from beef to poultry. china is sufficient envoy volume of poultry, but still importing breasts,eet, chicken it is stillans, so importing lots of mass-market products, but is also importing high-value products, and these imports are not just going to first and second tier cities, but heard, fourth, and fifth tier cities come all thanks to the internet of things. what companies can do on the trade level is that chinese demand will require quality, but even incts,
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terms of helping production, china is still looking for , forology, best practices practices that can improve local production. the overseasms of focus, we have seen a preference for these established names, cattlenches and ranches in australia. you see that trend continuing? beef, chinaing at will be in a structural deficit for the foreseeable future in beef, and that is why they are looking at supply. they are looking at the supply chain that goes all the way back to china, and integrated supply chain, even in terms of , there is a way to
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increase yield in farms in china. china will look at productivity growth and the farm aspects, and while they are producing enough grains for food, feed grain is a main problem for china has the population demands more animal protein. we do see a slowing of growth in the meet demand because of a theing economy, but also as population goes for value rather than just volume. indi: great to have those size. certainly challenges and opportunities ahead for agro business in china. up, new data suggesting corruption and bribery is on the increase in china. millennials are among the worst culprits. this is bloomberg. ♪
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haidi: the serve food of business practices suggests corruption and asia is steadily worsening. it concludes that ethical standards are not improving. give us a sense of the types of unethical behavior this report is referring to. >> the report mentions things like offering cash payments, offering entertainment and personal gifts to kleins to win business. the survey was 1700 employees in the asia-pacific region, 14 territories were included. it is quite interesting the figures they came up with. right, and specifically interesting in terms of the demographics, millennials, what does it say about that?
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>> that's correct. the survey found that comparedls in terms of to the other age groups, the millennials or more inclined to unethical justify behavior, such as offering cash payments or personal entertainment in order to help retain business erring times of economic downturn. yet the thing the survey showed was that millennials would be more likely to leave a company that was involved in some sort of corruption or bribery scandal, so the takeaway was there needs to be more awareness for millennials in terms of what constitutes unethical behavior. haidi: super interesting despite anticorruption and anti-graft campaigns, showing bad behavior still continues. thank you so much for that.
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coming up in the next hour, more on moody's surprise downgrade of china. analystsave of governor kuroda's comments in tokyo. this is bloomberg. ♪
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♪ announcer: from our studios in new york city, this is "charlie rose." charlie: we begin this evening with a look at president trump's first trip abroad as president. he landed in israel this morning after two days in saudi arabia. this comes after the report last week that trump had revealed classified information to russian officials that israeli intelligence provided to the united states. trump appeared alongside trump appeared alongside benjamin netanyahu today, and responded to the allegation. president trump: i never mentioned the word or the name israel. never mentioned it during that conversation. you had another story wrong. never mentioned


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