00:00Your thoughts on the Iran war and its implications on Asian economies, particularly on growth
00:06and earnings?
00:06Well, it's what everyone's talking about, no surprise, this morning and beyond.
00:10I think, in part, there has to be some level of differentiation as to how it impacts the
00:15different economies.
00:16In many ways, China is less directly impacted for no other reason than its dependency on
00:22crude oil and on Iranian crude oil.
00:25When you multiply it all the way through, it's a relatively low proportion of their energy
00:29needs.
00:30The combination of coal, renewables and nuclear means that China really only has crude oil
00:35in around 18% of its energy stack, and then call it 12% or so of that is from
00:40Iran.
00:40Do the math and that gets to a small number.
00:43That does not look the same all the way across the region.
00:46Places like Korea, India and Japan, more dependent either on crude or LNG.
00:51And therefore, the immediate read across makes one look at those economies more closely.
00:56But here's the thing.
00:58Global growth matters to China.
01:00It's an export-driven economy.
01:01And therefore, it's wrong to say that it is unimpacted, but it is less directly impacted.
01:07Yeah.
01:08And actually, Chinese market so far has been seen as largely a safe haven from the Iran war.
01:12But actually, if you look at year-to-date so far, it's been trading sideways.
01:16And if you compare it to the COSPI, yes, there's a lot of volatility, but it's steadily climbing.
01:20How are investors looking at these two markets?
01:22Well, this is what makes for an interesting conversation.
01:25In many ways, the Chinese onshore market has been correcting since last September, after
01:30quite a rally from the previous September.
01:32The converse is true of the COSPI.
01:34Clearly, it's been on a tear.
01:36And as you know, it's been sort of rapidly rising, for good reason, on the back of confidence
01:41around the memory supply, some geopolitical tailwinds.
01:45And that propelled it through the 5,000 number.
01:48We remain pretty positive about Korea.
01:51And that's anchored in our sense of where the memory supply needs of the world are headed.
01:56And that's why, for us at least, a target of 7,000 for COSPI is possible.
02:01But to be clear, Korea is one of the geographies where questions around energy are going to
02:06be loudest.
02:07And that's why I think you're seeing some of what you're seeing.
02:10Conversely with China, as we've already discussed, the direct energy impact may be limited.
02:14But of course, growth matters.
02:16But so does diversification.
02:18And one thing that's now true about China, we see a correlation of roughly around 8% with
02:23the S&P.
02:24And so it is a diversified market.
02:26Question around long-run growth and the implications of Iran.
02:29But near-term, at least, the energy factor is lesser for China.
02:33You've been on a world tour recently.
02:35You're in Shanghai, New York, and London.
02:37What are you hearing from market participants and policymakers, particularly on how they view
02:41Chinese growth?
02:42Well, I think one of the questions that gets louder as you head towards Europe is around
02:47the notion of a balanced trading environment, something Li Cheng talked about this weekend
02:51at CDF.
02:53And I think as you head towards Europe, they can't but notice the recent numbers, January
02:58and February.
03:00Imports into China up 11%, good.
03:03But exports from China into the European Union up 28%.
03:07Yeah.
03:08And so the question that arises is, is there an expiry date on the Chinese export-led growth
03:13model?
03:14And that, I think, is a conversation that continues to percolate in Europe in particular.
03:19In the US, the dominant discussion remains the US economy.
03:23What's going to happen to rates?
03:25Will they be cutting given the inflationary pressures of what we've now got by way of the
03:29oil supply shock?
03:30That's the question in the US.
03:32It's actually a different question in Europe, which really gets to the heart of the European
03:35economic model, its dependency or its reliance on having an export market in China, but also
03:41the significant wave of imports and how sustainable that is.
03:44So to your point, when do you see it as the expiry date for China's export-led growth?
03:49That's an open question, but it's a question I think will come into focus.
03:52I don't have a date to give you.
03:54But I do sense, and I do recognize, as I think do China's leaders, which is why I think Li
04:01Chong made the speech he made this weekend, that there has to be a rebalancing.
04:05And I was very struck in the 15th five-year plan.
04:08Yes, we've heard it before, but the emphasis on consumption.
04:11And it's very hard not to have a policy meeting in China and not be told about or hear discussion
04:17around what's being done to get consumption moving.
04:20But that's been said before, it's a tough journey to go on, but it is a journey that really
04:25will offset what otherwise will be a bifurcated Chinese economy.
04:29Immense strength in technology and export-led growth, a weakness on domestic consumption.
04:35The two do need to be reconciled.
04:38What is your thought on inflation?
04:40Because there is concern that this cost-led inflation is actually quite a dangerous way
04:45to get out of deflation in China.
04:46Yeah, well, this is the irony.
04:47China's been looking for inflation, but cost-driven inflation is not the same as demand-pull inflation.
04:53And it may only impact, therefore, the upstream industrial part of the Chinese economy.
04:58So it's not a panacea.
05:00But it's just possible, well, actually, they'll percolate into rising prices that give a little
05:06bit of growth more generally to the prices in the SEs.
05:09We can see 1% inflation on the PPI scale.
05:13But let's be clear, if it's cost-driven, it's not the same as getting the demand-pull that
05:17really people are looking for China to create.
05:20I just want to talk about some of the recent regulatory moves we have seen.
05:23So the SFC has raided some brokerages.
05:26It's also named and changed certain investment banks for shoddy paperwork.
05:29Do you agree with the government's assessment?
05:32I think one of the things that Hong Kong has always stood for is high standards.
05:35High standards are a good thing.
05:37I think for all of us who operate in these markets, we want to see the standards maintained,
05:42standards for which Hong Kong is well-known.
05:44So I think the SFC's actions to protect and sustain the standards of the IPO market,
05:49more generally, they're to be welcomed.
05:52And we, I know, and others are all very focused on making sure we do our part to deliver against
05:56those standards.
05:56On the mainland side, we did see the CSRC take actions to prevent the listing of more rich firms in
06:02Hong Kong.
06:03How big of an impact is this going to have on the investment banking side of things
06:07and on foreign investors' inflows as well?
06:09Well, I'm reading what you're writing.
06:10So I have to say at this point, that's what we're all dealing with.
06:14I think it's yet to be seen.
06:15It's a relatively modest part of, for example, the IPO pipelines that we can all have visibility into.
06:21So at this stage, you would say it's modest.
06:23But clearly what people are watching is how receptive is China to continued investment from overseas
06:30and how do overseas people see the players in China and their willingness to create a regulatory environment in which
06:36that's doable.
06:37I think on the red chip issue, let's see how that plays through.
06:42There are good examples that are bad examples.
06:43And I think China is clearly working on this area.
06:46But at this point, it's too early to tell how it's going to impact the market.
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