YouSaid · the spoken record

Larry Hu

lines on the record: 35
first: 2024-05-21
most recent: 2024-05-21
sittings or episodes: 1
sources: podcast

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“So, I'm taking away from this look, I like how you put it, Huay. Bad news is not always so bad because there are other parts of the economy outside of the property market that have shown to be humming along reasonably well and reasons to also be somewhat positive on the equity market, although recognizing it's already run up a lot. Huay, Kinger, thanks so much for joining us.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“For the equity market, certainly the risk reward profile isn't as attractive as it was three months ago, given how much the market has rallied. But looking ahead, if the policy momentum continues to be strong and look at where we are on valuations and investor positioning, we still believe that the tactical setup for further gains for the offshore market remains quite compelling. But more strategically, we still feel more comfortable with the Asia market because this is the market where the sensitivity to policy easing has been relatively higher than the offshore market and from a liquidity perspective. I think you are talking about more sticky, more anchored capital in the Asia market as opposed to the Hong Kong market, which is still very much dominated by foreign investors.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“To think about the Chinese property market. The bad news is not that bad because we are in a very different dynamic consumption can continue to carry on without a booming housing market. So I guess what I'm saying is that we feel comfortable with our 5% real GDP growth forecast this year and think risks at this point are more balanced.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“I think from a fundamental point of view, I would say the good news are not that good and the bad news are not that bad, meaning at this point the investor sentiment toward fundamental may be more in line with the reality, even though the central government is willing to spend money and come up with a credible package to support the property sector. We're still talking about a huge housing downturn in China, which will take time to see fundamentals maturity improve. But when I say bad news are not that bad, because if you think about where the housing market is versus the warehouse consumption is, they divorced. If you still use the mentality of in the housing downturn, there's negative wealth effect, consumption is going to collapse and the financial system is going to implode. Don't use that framework.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Policymakers in China may be calmer and may not react exactly the same way as they reacted in 2018-2019. And another point to make is that Chinese products are just very competitive. A lot of different dimensions and different products. So in the near term, we're still constructive on Chinese exports and exports contribution to GDP because we don't think it's that easy.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“I think the reaction function might be slightly different. So after President Trump took office in 2017, he started various investigations on trade-related issues, and in early twenty eighteen, the trade war started. And during the span of 2018 to 2019, the US imposed tariffs on over $300 billion worth of Chinese exports to the US, and the rates varying between seven and a half percent to 25% on these products. And in 2018-2019, China probably was more nervous about downside risk to the economy just because this is the first time of the U.S.-China trade war. But after six, seven years, Chinese exports are doing fine. U.S. trade deficit continued to widen. Chinese trade surplus continued to widen. So I think this time around.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“So, in that regard, this is not an immediate and important negative impact on China growth per se. But I think the fact that the Biden administration is raising tariffs, and then we have upcoming election, and in the scenario, Trump wins the election, and he has suggested that he would increase tariffs by 60% on Chinese products. That would be a much bigger deal for China. And we estimated that if without other offsets, then cumulatively subtract two points of GDP from Chinese economy in that scenario of a 60% tariff on everything China exports to the US. Certainly a significant downside risk. At the same time, I would also say on the China side, looking at experience from 2017 to 2023.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“The Biden administration just announced after the Section 301 review, they announced tariffs on Chinese goods worth of $18 billion. And the type of products include mainly EVs, batteries, solar cells, semiconductors, and some other strategic items. By itself, this announcement is not a huge deal for a Chinese economy because just putting things in perspective, China exported around half a trillion US dollar of goods to the US in 2023. We're talking about $18 billion of a product being tariffed. Even that $18 billion, not everything is effective 2024. Some of the items, if the US is having a hard time to source alternative suppliers, the effective date is that 2025, 2026.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Based on our recent conversations with regulators, I think the policy announcement momentum will be quite strong in the months ahead because they recognize that they need to come up with some specific and concrete measures to really deliver the promises they made to the market. So from our perspective, I think more specific policies on improving shareholder returns, on raising dividend paid outs, or encouraging more buybacks underway.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, 40% of valuation gains in our blue slice scenario, assuming that Chinese equities can match the existing global leaders on three dimensions, shareholder returns, corporate governance standards, and long-term institutional investor ownership in the stock market. And in a less aggressive scenario where China only improves to the regional averages along these dimensions the potential relating gains could still reach around 20%. So in other words, we believe that there is quite significant policy driven outside or value to be unlocked from the stock market if the necessary capital market reforms actions come through.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Alison, I think the nine measures are quite significant and consequential to the stock market, specifically just a month ago, the state council announced the once every decade policy opinions, aka the dynamic measures, which will guide the development of the Chinese capital markets in the years to come. So overall, we see three key policy objectives from the document A, strengthening supervision, B, raising the quality of listed companies, and C, enhancing investor protection. And overall, these policy objectives or focuses are largely consistent with the broader economic and strategic directions set out by President Xi and other senior policymakers in China. Now, in terms of the market implications, we estimate that we could potentially”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Understood. So, Kinger, another area where Chinese policymakers have been active are in the capital markets. We have had this nine measures, which is intended to bolster capital markets. Talk us through what the implications of that could be.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“The location and the exact design of these programs. But end of the day, we believe that central government is the only entity has the capability to provide the funding and push this through. Local governments are financially constrained. So it is a part expectation and part ongoing at the local basis.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“but not there yet so far. It still is a local-based program. Different cities are experimenting with different schemes. In some cities, it is that local government and local government financing vehicles come up with money to buy a property from someone, an old property, and then give them money for them to buy a new property from the developer. So the trade-in or replacement demand type of a program. In other cities, they might be giving you some kind of a discount if you buy property. We'll try to cut your taxes or fees. In some other cities, it could be the local government buy these empty apartment directly from developers and then turn them into some kind of a social housing or other uses to take them off from the normal owner occupied housing market. We're still waiting for the size.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Right. And just to be perfectly clear about this initiative they have announced, they essentially, it seems to me that the central government is proposing that they fund local government purchases of excess housing supply. Is that right?”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“We need to get rid of these excess supply. We need to have a government coming in by these empty apartments to rebalance the market. We have too much supply and not enough demand. So we need to boost demand and reduce supply, accelerate the timeline for prices to find bottom. So I think that thinking is correct. And as King John was saying, now the question we're asking is implementation delivery. Are they going to put in enough money in this program to rebalance the market soon enough? And are they going to be able to prevent people with multiple empty apartments all of a sudden come in thinking that this is a wonderful opportunity for me to sell my extra apartments? So there are a lot of implementation questions, but I think the mindset shift that”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“I think this is an important shift in mindset. I think previously the government was the view. If you read documents, they always say we want a market driven solution to the property sector problems. But in reality, property is the largest sector in China and is in a sharp decline. And market driven solution will not work. market-driven solution without a government intervention, think about it as a bank. You would not want to lend to developer or real estate sector, no matter how many times the policymakers are urging you because you don't want to make a loan that go bad and you have to hold the bag for the bad loans. If you're a household, you don't want to buy property because you think prices are still going down. So the market driven solution doesn't work. And I think the critical shift we saw over the past couple months is that government, the central government needs to do more.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“And fast forward standing in May right now of 2024. Exports are even better than our relatively constructive view coming into the year. But housing was worse than we expected. If you look at the top 100 developers reported data first quarter, their sales down 50% year. So ironically, because of the property sector has been so weak, perhaps that's one catalyst before the government to finally decide to accelerate easing or increasing easing. Hence, that's another catalyst for investors to focus on China and become more positive on Chinese risk assets. And also because exports have been so successful, we're hearing more noise about tariffs, trade tensions, and so on. So, I mean, going forward, the dynamic will be very interesting to watch because the reality”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“It's interesting when we looked at our forecast for this year's growth, we have been above the consensus for quite some time. When we introduced 2024 outlook, we were above consensus and we said if the government is aiming for around 5% growth one way or another, they will try to deliver it. You can put it differently. We are seeing not as much uncertainty on the top line GDP growth number because of the system works such that once they have a target, they're going to work toward it. But there's tons of uncertainty in terms of how the composition, which part is going to be outperforming, which part is going to be underperforming. For example, how much is exports going to grow or slow? How bad will the property market be? How much the government is willing to spend on infrastructure to offset weakness elsewhere, the compositions are very hard to predict.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“And I think what you just said is very important in the sense that there does seem to be some skepticism about some of the official data, but you are seeing some of that strength that's come through backed up by other indicators that we feel confident are reflecting a pretty realistic picture of the situation. When we think about the go forward, we always think about the first part of the Chinese year with New Year and a lot of different events that could stimulate the economy. If we think about the go forward, do we think that the better growth performance that we've seen can be sustained?”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Saying once we saw the Q1 GDP number above government target for this year, and we saw not only just official data seems to be better than expected, if you look at exports data, which you can verify with treating partners data, exports in volume terms up 10% young year in the first quarter. And then you look at the travel data during long holidays in China, people are going out and traveling around. And that doesn't seem to suggest consumption collapsing amid this big housing downturn. So I think your starting point, very pessimistic, and after looking at data and evidence and realizing perhaps it's not as bad as people feared. And I would think the fundamentals, they are weak, but they're not deteriorating. It's just expectations moving up from a very low level to where the reality is. And that might be.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“So, in terms of the fundamentals in the economy over the past couple months, I don't think we have seen dramatic changes with the benefit of hindsight, with market going up so much. I think it tells you at the beginning of the year, sentiment toward China grows or toward risks from the property sector must be super pessimistic. When we came in this year, we said that the government is going to try to get to 5% growth. It's going to be challenging. They need to do a lot of work. But I think a lot of investors are of the view. Just think about the headlines we saw day in, day out, housing Bost, and there could be a financial crisis following youth unemployment rate so high that the government stopped publishing the data, so on and so forth. So I think the starting point is a very pessimistic view on China. And then Kingjor was”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Right. And so maybe people who are more cautious are just a bit more skeptical on that policy execution. When you listen to what Kingr's saying and you observe this market performance, which has been nothing but stellar in the last few months, how does that square with your view on the economy right now”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Say we have received a lot of pushback, but precisely to the question you asked about the durability of the rally, I think that's the main concern and the debate or main debate among investors. And again, I think the deciding factor here would be policy delivery. So if the authorities come up with a comprehensive and forceful plan to address the structural overhangs and the structural imbalances, then we think the recovery has more legs to go. But if the policy turns off to be another disappointment, then obviously it's difficult to extend the rally. So I guess the concern out there is really about how committed or how forceful the policy reaction function could be.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“The simple answer to that is that we expect some further or moderate further expansion in multiples in Chinese equities. Again, even after the 30% rally, MSN China is still trading at 10 times foreign earnings, which is one standard deviation below historical averages.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“As and we are slightly below consensus in terms of earnings for this year. We're forecasting 8 to 9% EPS growth for Chinese equities depending on which indices you look at. Consensus looking at about 12 to 13 percent. So again, we're slightly below consensus. But assuming that our forecasts prove to be correct and valuation do not change from here. So just by writing on the earnings accrual curve, you'll get about 10% oxide from Chinese stock market.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Understood. And you also mentioned that we are still in an earnings downgrade cycle. So we do expect to see, as you said, about 10% upside in the index. So you are assuming that earnings are going to improve?”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Be the key to watch as I'm sure it will attract a lot of attention from investors as this is probably the venue where investors will get more visibility about policy easing and reforms for the years ahead. So overall, I think the path ahead is still very much policy dependent, but we still think that the tactical market setup looks quite compelling considering that equity valuations for China remains quite inexpensive. You're talking about 10 times forward earnings for offshore equities and about 12 times for the Asian market, which are roughly speaking one standard division below mid-cycle averages. And on top of that, investor positioning continues to be quite conservative. So Apple's have certainly improved in the past month or two, but both hedge funds and mutual fund mandates allocation to Chinese equities remain at the low end of the five-year range. So putting FI into the”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“After the 40% rally in the Hong Kong market and 15% rebuff in Asia, I think the sustainability of the rally will depend on one key word, which is delivery. First, it's about delivery of earnings. And the bigger picture here is that, Allison, we are still in an earnings downgraded cycle for the aggregate market, and we need corporate profits to come through to provide more fundamental support to the recovery. But the good thing here is that we have seen some early signs that earnings are improving, especially in the internet and consumer related parts of the equity universe. And second is policy delivery. And in particular, when and how they promised policy easing regarding the housing market, as well as equity market reforms will be implemented. And on that, we think the forthcoming food plan that will be held in July will”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Right. And just to be perfectly, perfectly clear, I know you said this, but we aren't seeing any type of government intervention in the offshore Hong Kong market. It's the fundamentals and it's this mix of investors coming in. Okay, understood. So, I mean, putting it all together, do you think that rally is sustainable? We have seen tremendous upside, as you said, fundamentals support the type of move we've seen. And do you see more upside ahead?”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“I think, first of all, if you look at who's buying Chinese equities, I think I'll be more specific and divide our comments into the domestic Asia market and the offshore Chinese equity market. Now, as I mentioned, the government has been quite proactive in the Asian market, essentially underwriting a downside put option to equity investors, although domestic retail and mutual fund buying in the Asian market has been quite modest so far. But in the Hong Kong market, we have observed quite balanced participation between hedge funds and mutual fund mandates globally in the past one month as opposed to just short covering and opportunistic positioning that really dominated the flow picture in the last few market recovery episodes. So what I'm trying to say here is that obviously the government backstop has been quite effective in the Asian.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Interesting conjure that investors find that as a source of optimism. I mean, I see your point less downside risk, but is there any sense, though, that because the government is in there as a backstop and is actually buying, that this is really just propping up the market? And so the rally isn't necessarily sustainable, driven by fundamentals.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Direct government sponsorship in equities where based on our estimate more than two hundred billion RMB has been deployed by the so-called national team to intervene the Asia market and that has effectively changed the risk rewarded perception for investors on Chinese stocks. And number three, this is a theme that we've been emphasizing for quite some time, which is that the policy put option has been exercised, including a pro-growth messaging from the April pro-bureau meeting and the recently announced equipment reform initiatives from the state council. So against a backdrop where policy expectation has improved, I think what we have experienced is a process where investors are pricing out the left-hand risks and better in equity valuations, thereby driving the rating recovery over the past month or two.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Let me try to put things into context. Now, the China offshore equity market, i.e. Chinese companies listed in Hong Kong and the US, has started to perform well after the Chinese New Year, running almost 30% since the trough in late January and has been the best performing equity market globally in the past three months. And at the same time, the domestic Asia market has done also quite well up above 15% during that period. Now, at the high level, we think a few key ingredients have gone into the rebound. Number one, Benetta economic growth in the first quarter, real GDP growth came in at about 5.2%, stronger than consensus expectation, and subsequently consensus GDP growth for the full year has been revised up in a guess worth more to say on that in a moment. And number two is really the”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT
“Kindra, I'm going to come to you first because obviously we had seen Chinese equities underperforming for a pretty long period of time, but in the last few months, we have seen them rallying sharply. So talk to us about what's driving the rebound.”
2024-05-21 · Goldman Sachs Exchanges · Is China’s rebound for real? · IDENTIFIED FROM THE TRANSCRIPT