Transcription
Hello everyone, welcome to the latest episode of "Stock Market C View." I am Hao De. Beside me are Shi Sheng and Mr. Tommy Wang Liangxiang, Managing Director of Zhenxiang Consulting. Tommy, hello, welcome. Hello everyone. In our first segment, let's discuss the foreign exchange situation. Recently, the Japanese Yen against the US Dollar exchange rate has fallen below 162, nearing a nearly 40-year low. Some analysts suggest the Yen is on the verge of a currency crisis. Tommy, first, is the 162 level considered an alarm bell? 162 is indeed close to an alarm bell. Remember the 1985 Plaza Accord? The US Dollar against the Yen 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 suppress the Yen. Think about it, from over 80 to around 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 think 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 much in recent years. From 2021 to 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 it has fallen slightly in the last two months, with inflation at 1.8% and 1.9%, it's because the Japanese government has provided many subsidies. Water bills are subsidized, electricity bills are subsidized, travel 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 out, they fall 10% because their raw materials are 100% imported. Production is now done in China and Vietnam, so you will find their profits are getting lower and lower. No matter how much the Yen falls, it doesn't help them. It's even worse because the price of raw materials keeps rising. Additionally, for example, TOYOTA's stock price has fallen 17% this year. So this situation affects Japan, whether it's the zaibatsu economy trying to help large corporations or caring about 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 US, which is to push up the Yen a bit. Shi Sheng, what are your thoughts? Some analyses say the Japanese government is using verbal tactics, but their effect is minimal because the market is very concerned about the Japanese government's fiscal prospects, etc. Shi Sheng, what are your thoughts? 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 thoroughly solve the problem. It's not like before when there was constant deflation. Inflation has reversed, but their debt is still increasing. Many people are worried if it will eventually lead to a financial crisis. Because Japanese interest rates are so low, everyone borrows Yen to buy US Dollars, partly for higher interest rates and partly for investment. But if this type of activity is 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 US 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 situation 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 before, in 2013, when Abe and Sanae Takaichi first took office, 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 estimated, 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 around 90 billion. Now, if everyone conspires to operate together again, it's dangerous. But I don't think the US wants currencies in the Asian region to weaken too much. A weak Yen will lead to other Asian currencies weakening, 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 manufacturing leader. 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 negative interest rates are not too severe and it won't fuel asset bubbles. The Nikkei is currently being propped up, 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 emulate the "Plaza Accord" mentioned earlier, to 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 do you think? I don't think it's very possible. 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, where they had to listen. Secondly, even if you revalue the Renminbi, they have tried it before. They tried it once in 2005. You revalued it, and the Renminbi appreciated by 35% against the US Dollar. You can do that, but China has countermeasures. So if you now do a similar Plaza Accord, Europe would be easily unified, encompassing the Eurozone countries. What about the US Dollar? You can't just have the Euro and the Renminbi together with the US Dollar. You need to find the US to help. 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? The difficulty in influencing the Chinese government's decisions is much higher 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. Because the proportion of offshore Renminbi in its total is not that large, it can ignore the rise and fall of the offshore Renminbi. Furthermore, if you cause the Renminbi to appreciate, will Chinese products lose their competitiveness? Chinese products are selling very well in the international market now, not because of Renminbi depreciation. Don't get me wrong. Chinese products have a much higher cost-performance ratio. Its 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, more foreign exchange will be earned 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 think. I agree. I'm not advertising, but I just "scrapped" an old car, a Mercedes. Now I'm driving a Zeekr, and the feeling is very stable. We are not competing with others using low-end goods. I think during the Plaza Accord, Japan was very close to the US, extremely close. So the US came up with this scheme to double the Yen 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. It appreciated by 2% in 2005, and then by a total of 35% over 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's weak, from the beginning of this year to now, it's still 4.7%. If people say the US economy is good, the US economy is currently growing at over 2%. That's a trend, not particularly good or particularly bad. We have seen explosive growth before, like China's GDP at 8%. But for 1.4 billion people, 8% growth, if you see it, India has started to experience difficult times in the last two years. So I think at this level, stable GDP growth is not an excessive thing. Shi Sheng, what are your thoughts? China's situation, in a way, is affected by the bursting of the real estate market. The proportion of Chinese citizens owning self-occupied properties is very high. Hong Kong is only around 50%, while China has 80%. Everyone owns property. When property prices have fallen by almost 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" are industries with higher technological content in manufacturing, etc. They are actually doing quite well. So purely in terms of GDP percentage, from the era of "guaranteeing 8%" with double digits, 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, China has competitive advantages in many technological areas, such as solar panels and batteries. Although the US is growing at over 2%, in terms of 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 instance, 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 it may be constantly 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 also a balance. Although we are a manufacturing nation, we also need to allow our citizens to have money to spend. The time for the first segment is almost up. In the second segment, we will discuss interest rates and the property market.