Transcription
Hello everyone, welcome to the latest episode of "Stock Market C View." I am Hao De. Beside me is Shi Sheng, and also Mr. Wang Liang Xiang, Managing Director of Zhen Xiang Consulting, Tommy. Hello Tommy, welcome. Hello everyone.
In our first segment, let's discuss the foreign exchange situation. Recently, the yen-to-dollar exchange rate has fallen below 162, approaching a nearly 40-year low. Some analysts suggest the yen is on the verge of a currency crisis. Tommy, let me ask you first, is the 162 level a warning sign?
162 is indeed close to a warning sign. Remember the 1985 "Plaza Accord"? The dollar-to-yen rate fell from 250 to over 120, then to over 80. Back then, in 2013, Abe introduced the "three arrows," but that was just an excuse. He actually wanted to depress the yen. Think about it, from over 80 to 160 is about a 50% increase. In other words, in these 13 years, it has fallen by 50%. If this level doesn't hold, as some people say, it could easily go to 180 or 200. However, I believe that although the Japanese government has a "zaibatsu economy," when you reach such levels, they do have to worry about the common people. Because of imported inflation, the yen has fallen so sharply in recent years. From 2021 and 2022 until now, Japan's core inflation has been above 2% for about 40 months. Interest rates have only been 1%, and negative interest rates have persisted for so long. Although inflation has fallen slightly in the past two months to 1.8% and 1.9%, this is because the Japanese government has provided many subsidies. Water bills are subsidized, electricity bills are subsidized, transportation is subsidized, and gasoline is subsidized. Inflation has effectively taken shape, so interest rate hikes are needed. However, because Sanae Takaichi is currently the Prime Minister, she stated upon taking office that she would not allow interest rate hikes. This week, the Japanese Finance Minister has actually surrendered. He said to ask some insurance companies and the Japanese Government Pension Investment Fund to buy some long-term Japanese bonds. Bond yields have fallen rapidly, by almost 0.3%. So I think they are starting to realize that a too-weak yen is not a good thing. Although it can help some companies, if we look at companies, for example, Fast Retailing, the parent company of UNIQLO, they are actually not making money. As soon as the results are released, they fall by 10% because 100% of their raw materials are imported. Production is now done in China and Vietnam, so you will find that their profits are getting lower and lower. No matter how much the yen falls, it doesn't help them. It's even worse because raw material prices continue to rise. Additionally, for example, TOYOTA's stock price has fallen by 17% this year. So this situation is not good for Japan, whether it's the zaibatsu economy helping large corporations or caring for people's livelihoods. The price of flour is rising, and the price of rice is also rising. In fact, inflation needs to be suppressed. So I think they have a "blessing" from the United States, which is to push up the yen a bit. Shi Sheng, what are your thoughts? Some analyses say the Japanese government is using rhetoric, but it's not very effective because the market is very concerned about the Japanese government's fiscal prospects, etc. What are your thoughts, Shi Sheng?
I think for a country to have a good economy, the most practical thing is technological breakthroughs, increased productivity, and making money. Everything becomes easier. The new Federal Reserve Chairman, Powell, agrees that if the economy is good, US debt will not be a problem, because he says AI may bring significant productivity gains to the US. But I think Japan seems to want to adjust its economy through monetary and financial means. However, these financial means usually have one benefit and one drawback, and may not completely solve the problem. It's not like the past, with constant deflation. Inflation has reversed, but their debt is still increasing. Many people are worried if this will eventually lead to a financial crisis. Because Japanese interest rates are so low, everyone borrows yen to buy dollars, partly because interest rates are higher, and partly because you can invest. But if this type of activity becomes too prevalent, and if they now try to raise interest rates, investors may suddenly take another action to protect themselves, which could cause turmoil in the financial markets. So, will the United States help Japan? It is also their main ally in Asia. During the Plaza Accord, they made many sacrifices for Japan. They should help, but they are afraid of being dragged down themselves if they help. So whether they will help depends on the situation. At this point, I think it's a position where things can easily go wrong, so we need to be very careful. Tommy, do you think the depreciation of the yen will continue? I don't think it will change much. Because in the past, when Abe and Sanae Takaichi first took office in 2013, they strongly believed that a weak yen was useful. But by now, they should have seen that the power of hedge funds or arbitrage trading is truly immense. Conservatively, 500 billion to 1 trillion yen has been shorted, and it's in US dollars. If you take a government pension fund, for example, even if you increase your asset allocation to Japanese bonds by 5%, that's about 90 billion. Now, if everyone conspires to operate again, it's dangerous. But I don't think the US wants currencies in the Asian region to be too weak. If the yen is weak, it will bring down other Asian currencies, for example, the Korean won has also been very weak recently. You say the Korean stock market rises every day, although it has fallen recently, the Korean won has fallen to a historical low. So the US dollar's dominance has both pros and cons for the US. You might attract some safe-haven funds, but in the long run, it will be difficult for the US to become a leader in manufacturing. Do you think the chance of Japan raising interest rates is high? I think it's higher now. Because previously, the central bank was instructed by Sanae Takaichi not to raise interest rates, so it has been very slow. In fact, it would be better for Japan to raise rates a bit faster. If they raise rates faster, people will think that negative interest rates are not too severe, and it won't fuel asset bubbles. The Nikkei is being propped up now, and everyone wonders if it's artificial.
Moving on from the yen, let's talk about the renminbi. Recently, German Chancellor Scholz mentioned the renminbi in a university speech, saying that our renminbi is undervalued by at least 25%. He also said he had advocated for the EU to follow the example of the "Plaza Accord" and engage in dialogue with countries whose currencies are undervalued. I'd like to ask both of you, if Europe wants to replicate the Plaza Accord on China, is it actually possible? Or is it just wishful thinking from Europe? Tommy, what are your thoughts?
I think it's highly unlikely. In 1985, Japan and Germany were politically weak nations. Forty years after World War II, everyone listened to what the US said. At that time, the US dollar was strong, and they wanted to weaken the US dollar. Now you say the renminbi is too weak and they want to prop it up. If you target the renminbi, the renminbi is not a currency that is freely convertible against all currencies. Its capital account is still not open. So, firstly, China is not politically in the same position as Japan and Germany were back then, who had to listen. Secondly, even if you increase the renminbi, they have tried it before. They tried it once in 2005. You increased it, and the renminbi appreciated by 35% against the US dollar. You can do that, but China has countermeasures. So if you try to do a similar Plaza Accord now, Europe would be easily unified. The Eurozone countries are all in Europe. What about the US dollar? You can't just have the euro and the renminbi together with the US dollar. You need to find help from the US. Will the US help Europe? I don't think so. However, regarding the renminbi, China has room to let the renminbi appreciate a bit. Shi Sheng, what are your thoughts?
It is very difficult to influence the decisions of the Chinese government because its capital account is not open. Even if you have a lot of funds, it's not easy to buy or sell in the market to push it up or down. Because the proportion of offshore renminbi in its total is not that large, they can ignore the rise and fall of the offshore renminbi. Furthermore, if you cause the renminbi to appreciate, will Chinese-made products lose their competitiveness? Chinese products are selling very well in the international market now, not because of renminbi depreciation. Don't misunderstand. Chinese products are truly much more cost-effective. Their manufacturing industry is far behind Europe or the US. Personally, I think a slight appreciation of the renminbi can help China export and earn more foreign exchange. Products from other countries are not as cheap and high-quality as China's. If the renminbi appreciates, they will earn more foreign exchange from exports. Why doesn't China want the renminbi to depreciate? In the past, for some reason, when the renminbi depreciated slightly, the West would claim that China's political regime was unstable and its people had lost confidence. Therefore, maintaining a stable level for the renminbi is sometimes a need for China's internal management, rather than a need to occupy the market through foreign trade. Personally, I don't think China needs to rely on renminbi depreciation to occupy the market. So, a moderate appreciation is fine. I agree. I'm not advertising, but I just "scrapped" an old car, a Mercedes-Benz. Now I'm driving a Zeekr, and the feeling is very stable. We are not competing with others using low-end goods. I think at the time of the Plaza Accord, Japan was very close to the US, extremely close. So the US came up with this scheme, causing the yen to double in two years. Do you think China has learned from this lesson? We saw from 2005 to 2014, when the G7 and G8 constantly called for the renminbi to appreciate. In 2005, it appreciated by 2%, and then it appreciated by a total of 35% in nine years, which is less than 4% per year. So I think China has its own rules. Recently, the renminbi has been appreciating. As Tommy mentioned, other currencies in the Asian region are relatively weak. How should we view the future trend of the renminbi? Recently, China's GDP seems to be weak. It is weak, but everyone should note that even if it is weak, from the beginning of this year to now, it is still 4.7%. If people say the US economy is good, the US economy is currently growing at just over 2%. That's a trend, not particularly good, nor particularly bad. We have seen rapid growth before, like China's GDP at 8%. But for 1.4 billion people, 8% growth, if you see it, India has started to have difficult times in the past two years. So I think reaching such a level where GDP growth is stable is not an excessive thing. Shi Sheng, what are your thoughts?
China's situation, in some ways, is affected by the bursting of the real estate market. The proportion of Chinese citizens who own their own homes is very high. In Hong Kong, it's only about 50%, while in China, it's 80%. Everyone owns property. When property prices fall by nearly 40-50%, I believe trillions of assets have evaporated. So their balance sheets have problems, which in turn affects their investment capacity and consumption capacity. But has their productivity been affected? China's proposed "new quality productive forces" actually refer to manufacturing and other industries with higher technological content. They are actually doing quite well. So, purely in terms of GDP percentage, compared to the era of "maintaining 8%" with double-digit growth, it's now only half. But in reality, I see that the competitiveness of Chinese products is truly formidable. You mentioned electric vehicles just now. I think they will soon sweep the European and Japanese markets. Many German car manufacturers, after seeing Chinese products, have temporarily halted their development because it's difficult to compete with China. Additionally, in many technological fields, such as solar panels and batteries, China has competitive advantages. Although the US is growing at over 2%, if we talk about economic prospects, China's prospects are more than double that. China still has considerable potential to maintain economic growth. I see some foreign analysts today believe that GDP growth is not as high as expected and that the resilience of the Chinese economy may be problematic. Personally, I believe the resilience of the Chinese economy is still very strong, and the opportunities for upward movement in the future are more numerous than problems. I think what Shi Sheng said, for example, about manufacturing exports, is precisely the issue Hao De wants to discuss. For example, Europe is now exporting goods to Europe, and Europe is also finding some goods to export and demanding that China's currency appreciate. There are some disputes, but I think China's view in recent years is that the US economy has a slight bubble, and they may be waiting for the bubble to burst. But now, with the development of AI and some innovative drugs, etc., there are no signs of a major economic downturn. So I think China will eventually return to stimulating its own economy more. That is to say, it won't just rely on manufacturing exports. In fact, it is now optimizing its service industry and domestic demand. Today, we see China allowing Apple to enter and cooperate with Alibaba and Baidu for AI. This is a balance. Although we are a manufacturing country, we also need to let the common people have money to spend. The time for the first segment is almost up. In the second segment, we will return to discuss interest rates and the property market.