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Under the Banyan Tree - Live from HSBC Hong Kong
27 Plays5 months ago
Fred Neumann and Herald van der Linde return to the stage alongside Global Research colleagues Steven Sun, Michelle Kwok and Frank Lee for a special podcast recorded in front of a live audience at HSBC's Hong Kong headquarters. Disclaimer: https://www.research.hsbc.com/R/101/MR9Ct9C. Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/ or click here: https://www.gbm.hsbc.com/insights/global-research.
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Transcript
Podcast Introduction
00:00:02
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:16
Speaker
Thanks for listening.
00:00:17
Speaker
And now onto today's show.
Meet the Experts: Fred & Harold
00:00:33
Speaker
Welcome to Under the Banyan Tree, where we put Asian economics and markets in context.
00:00:38
Speaker
My name is Fred Newman, HSBC's Chief Asia Economist here in Hong Kong.
00:00:43
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My name is Harold van der Linde, HSBC's Asian Equity Strategist.
00:00:46
Speaker
I look at stock markets and we're here today to talk about what is going on in the Chinese stock market and the economy, are there green shoots and things as such.
Guest Speaker Introductions: Steven, Michel & Frank
00:00:55
Speaker
And we have great three speakers for you today.
00:00:58
Speaker
First we have Steven Son, actually our head of research at ABCN Tianhai Securities over at the border, coming here today to Hong Kong.
00:01:07
Speaker
And then we have Michel Kwok, our head of equity research in Hong Kong.
00:01:11
Speaker
And we have also Frank Lee, who is our global head of tech research and semiconductors.
00:01:19
Speaker
And so we're going to ask you guys a series of questions.
00:01:22
Speaker
And of course, I think, Harold, the place we need to start really is China and the equity market.
00:01:26
Speaker
Absolutely.
00:01:27
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So we've got Steven Son here.
00:01:28
Speaker
Steven, just put a little bit of context.
00:01:31
Speaker
What's going on?
00:01:32
Speaker
What's happened in Chinese equities?
00:01:34
Speaker
You've been a busy man over the
Impact of China's Fiscal Stimulus: Does it Boost Growth?
00:01:36
Speaker
last couple of weeks, right?
00:01:36
Speaker
Well, thanks for having me, Harold and Fred.
00:01:39
Speaker
When you're invited by Banyan Tree, you know you're popular and in demand, which is good after two and three years.
00:01:47
Speaker
So basically, the market has done really well.
00:01:50
Speaker
We do think that although we don't know the details in terms of size,
00:01:55
Speaker
in terms of scope, also the timeline on the fiscal stimulus, but that actually can keep the hope alive.
00:02:04
Speaker
And we do believe as time goes on, we'll get more details on that.
00:02:08
Speaker
Stephen, let me challenge you here.
00:02:10
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And I know Harold gave you a softball question being a fellow equity strategist like you always, you know, equities, equities, equities.
00:02:17
Speaker
I'm an economist.
00:02:18
Speaker
I'm by nature very skeptical.
00:02:21
Speaker
Tell me, tell me, how much does that stimulus really make a difference?
00:02:25
Speaker
How much is really coming into the economy?
00:02:28
Speaker
Are you really surprised what they're putting in?
00:02:30
Speaker
Are they doing what it takes or is this just more cosmetic?
00:02:34
Speaker
I mean, a few interest rate cuts here and there, a few trillion RMB, is that going to make a difference?
00:02:40
Speaker
Well, I think this should be actually a question for you, right?
00:02:43
Speaker
And to listening to Jing Liu, China is no stranger to fiscal stimulus, right?
00:02:49
Speaker
Since 2008, they have done five rounds of fiscal stimulus.
00:02:53
Speaker
There are occasions where they're more successful when that can be translated into a credit impulse.
00:03:00
Speaker
when you have the key sectors kicks in, such as property, and then the fiscal stimulus can get that multiple effect to drive credit cycle.
00:03:11
Speaker
When you have the credit cycle start to work, and then that helps to stabilize the economy, and as a result of that, better market performance.
00:03:20
Speaker
Have we seen already earnings being revised upwards?
00:03:23
Speaker
Do you see that the analyst community at large is actually getting a little bit more positive, or is that too early yet?
China's Cash Reserves: Market Influence & Liquidity
00:03:30
Speaker
There's usually a time lag, two to three quarters.
00:03:33
Speaker
So I would say, you know, probably have to wait until first quarter next year or second quarter next year.
00:03:40
Speaker
But directionally, I think that's quite clear.
00:03:43
Speaker
Also, I think there's a couple of other factors that are quite important, right?
00:03:47
Speaker
I mean, mainland Chinese markets are quite sensitive to low interest rates in the U.S., but there's a lot of cash on the side as well in China.
00:03:56
Speaker
Is that right?
00:03:57
Speaker
Exactly.
00:03:58
Speaker
That's the piece of report you published.
00:04:01
Speaker
Are you plugging your own report here on a podcast?
00:04:04
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Well, if you want me to answer the question, it is something maybe to highlight.
00:04:10
Speaker
There is 20 trillion.
00:04:11
Speaker
That is 20 trillion with a T.
00:04:14
Speaker
US dollars in deposits in China, mainland China alone.
00:04:19
Speaker
And in Hong Kong, there's 1.2 trillion, again with a T, US dollars that just sits in demand deposits.
00:04:27
Speaker
That's the money that you and I have in the bank.
00:04:29
Speaker
That is money that people have put into a deposit that will come out in one month, three months.
00:04:35
Speaker
And to add to this, we're talking US dollars, 20 trillion.
00:04:38
Speaker
That is actually double from 2019.
00:04:40
Speaker
So it's a large number, but it's double from what we had in 2019.
00:04:46
Speaker
So how do you think about this?
00:04:47
Speaker
Does that mean, well, there's a lot of liquidity sitting on the sidelines and this could be ultimately maybe find its way in the market?
00:04:55
Speaker
Or is it saying, hey, despite everything went on, nobody wants to buy equities?
00:04:59
Speaker
Exactly, yeah.
Chinese Property Market: Stimulus & Recovery
00:05:00
Speaker
Well, you know, for every single bull market, definitely you need participation from the Chinese household.
00:05:07
Speaker
But, you know, this time around, we have seen the retail interest coming back very strongly.
00:05:13
Speaker
The key question is how do you prolong the cycle, right?
00:05:17
Speaker
If it's a very sharp and sharp bull market, which quickly fade out, and those Chinese households could be trapped.
00:05:25
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Certainly that's not what we want.
00:05:27
Speaker
And then that's why,
00:05:29
Speaker
you would have to have fundamental improvement in order to prolong the cycle.
00:05:33
Speaker
It does look like coordinated, right?
00:05:35
Speaker
All the announcements that have come through.
00:05:37
Speaker
But I wonder if we should ask Michelle here if we actually see improvements coming through, if people start to feel comfortable.
00:05:44
Speaker
Is some of that money going into property for itself?
00:05:46
Speaker
We should say Michelle, of course, is head of Hong Kong equity research, but also an expert on the Chinese property market.
00:05:54
Speaker
Indeed.
00:05:54
Speaker
And a lot of stimulus measures that we saw related to property, and of course property matters, are we really seeing the green shoots there in property?
00:06:02
Speaker
I'm really really excited.
00:06:04
Speaker
I mean the last month since I would say probably dating back to May that was the first shot of stimulus that we had when we have the down payment ratio of first home being cut.
00:06:13
Speaker
September was the very significant second shot and then we have the stock market stimulation.
00:06:18
Speaker
So all of this is really added up to a massive stimulus in China real estate perspective and in fact we're already seeing data
00:06:26
Speaker
surging in terms of transaction volume.
00:06:28
Speaker
We've seen second-hand home price in a way somewhat stabilizing.
00:06:32
Speaker
And so I think there's a lot of room to really imagine.
00:06:34
Speaker
You say you're really, really excited.
00:06:36
Speaker
Sorry, I had to process that.
00:06:37
Speaker
Really excited.
00:06:38
Speaker
I think the first time I hear this about Chinese property in four years.
00:06:42
Speaker
In about four or five years.
00:06:43
Speaker
Somebody's really excited.
00:06:44
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Yeah.
00:06:45
Speaker
Now, what is one of the key data points, number one data point where you say, wow, I didn't expect this to happen in Chinese real estate?
00:06:51
Speaker
Is it Beijing, apartment prices surging?
00:06:53
Speaker
Or what's really the key number one data point you point?
00:06:56
Speaker
It's all about the volume.
00:06:57
Speaker
You actually hear, depending on what data you look at, volume-wise, some cities you've seen a surge in volume, depending on what period, right?
00:07:04
Speaker
Two times or three times, 100%, 200%, 300%.
00:07:08
Speaker
secondary volume as well.
00:07:10
Speaker
And in fact, I would say one data point that everybody missed and keep challenging me about this, is there even housing demand in China today?
00:07:18
Speaker
Of course there is.
00:07:18
Speaker
If you look at the secondary volume, it's been generally quite stable despite the crisis that we've had the last four years.
00:07:25
Speaker
Well, I have to say, Michel is coming strong out of the gate here.
00:07:29
Speaker
How does it work with the equity market?
00:07:31
Speaker
Property is huge in China.
00:07:32
Speaker
Equity market is, of course, quite large as well, but not as large as the property market.
00:07:37
Speaker
Would a recovery in the property market be good for equities, or does it mean that all the money you talk about, liquidity, then goes back in the property and you're still left with equities hanging in there?
00:07:47
Speaker
Yeah, property is critical.
00:07:48
Speaker
You cannot stabilize the economy without stabilize the property sector.
00:07:54
Speaker
and the key difference whether you want a fiscal stimulus to create that multiple effect.
00:08:00
Speaker
Uh you would have to go through certain sectors and property is the most important one.
00:08:05
Speaker
So when you have that multiple effect and then you will get the credit cycle started kicking in and then that's
00:08:11
Speaker
the foundation for a good economy and good equity market.
00:08:15
Speaker
Also, you got 20
China-Hong Kong Market Dynamics
00:08:16
Speaker
trillion US dollars, right?
00:08:17
Speaker
You keep saying that, Harold.
00:08:18
Speaker
We've done a lot of work on that.
00:08:20
Speaker
Is that your research?
00:08:21
Speaker
That's actually our research.
00:08:23
Speaker
Thanks for reading it, Fred.
00:08:25
Speaker
But there is so much money there that it can go either way, right?
00:08:28
Speaker
It doesn't have to be one versus the other in that.
00:08:31
Speaker
in that sense.
00:08:32
Speaker
If people would buy property, what are they going to do?
00:08:35
Speaker
Is it going to be new property, higher-end, lower-end?
00:08:37
Speaker
Is it going to be the main cities where people are going to do it?
00:08:39
Speaker
Or is it going to be in third-tier cities where maybe property is cheaper?
00:08:43
Speaker
What is the nature of demand you think is going to come through?
00:08:46
Speaker
So at the moment, markets still look at the secondary market, so still buying older flats because they're cheaper.
00:08:52
Speaker
And also you don't run the risk of actually not getting delivered, right?
00:08:55
Speaker
Yeah, that's right.
00:08:55
Speaker
But price has actually come down in the secondary market, and that has actually driven the surge in volume.
00:09:01
Speaker
But what we see is actually gradually that should shift in the primary market, the new home market, because new home prices are now coming down.
00:09:08
Speaker
And so once we reach that equilibrium, then it becomes much more meaningful to look at the primary market.
00:09:15
Speaker
So let me ask you, so you're also head of Hong Kong equity research.
00:09:19
Speaker
So maybe a final question.
00:09:21
Speaker
Green shoots in mainland China in terms of stimulus, people feel a little bit better about the equity market, property market is looking maybe a bit better.
00:09:29
Speaker
How does it help us here in Hong Kong?
00:09:31
Speaker
We had a bit of a rough ride.
00:09:33
Speaker
How do you think about the spillover to Hong Kong in general?
00:09:37
Speaker
When China does well, mainland China does well, Hong Kong does well, we have seen when we have the housing policy measures completely taken off in February, we've seen a surge in sales volume.
00:09:50
Speaker
We have seen the mainland Chinese participation had a very sharp surge, and we have seen the latest round of government policy also benefiting alongside the U.S. rate cut.
00:10:01
Speaker
And so I think the dynamics in mainland China and Hong Kong, basically high correlation.
00:10:07
Speaker
That's true, but interest rates here are still much higher.
00:10:09
Speaker
Mortgages are much more expensive here than in mainland China, right?
00:10:13
Speaker
So that what I mentioned, that positive carry, getting these rates down to where it made sense to buy and rent it out, that will probably take a bit longer in Hong Kong, is that fair to say?
00:10:22
Speaker
Exactly.
00:10:22
Speaker
So I would say that at this moment we're still observing, but the market is already feeling good.
00:10:28
Speaker
A couple of weeks ago when we actually arranged a Hong Kong property to
00:10:32
Speaker
or slot to refill by Hong Kong needs, Hong Kong investors.
00:10:35
Speaker
So Hong Kong investors all of a sudden interested in looking at property again.
00:10:39
Speaker
So I would say that when US rates come down more, when the cost of carry started to make more sense, the Hong Kong market generally should benefit a lot.
00:10:47
Speaker
That sounds great.
00:10:47
Speaker
I'm just worried about my rent in the coming year if I hear your story about that.
AI in Global Markets: A Sustainable Growth?
00:10:52
Speaker
But anyways, Frank, we've got to come to you because there's one story that really was driving global markets in the last, what, 18 months, and that is AI, AI, AI.
00:11:04
Speaker
And a lot of these players based in Asia, the hardware stuff, the guys who built the machines around this,
00:11:13
Speaker
Are we looking a bit peaky here?
00:11:15
Speaker
I mean, have we exhausted ourselves?
00:11:17
Speaker
Or is there just, are you remain optimistic that the demand for hardware will continue at this pace for very much longer?
00:11:28
Speaker
Yeah, so I think, Fred, that's a great question.
00:11:30
Speaker
I think you're right.
00:11:30
Speaker
The last 18 months in a tech space,
00:11:34
Speaker
every day all you hear about is AI, right?
00:11:36
Speaker
So I think there's been this hope that the AI story can become a bigger story because to date, AI has only helped probably a very concentrated group of companies, right?
00:11:47
Speaker
You know, it's mainly US companies, some companies that manufacture chips and AI, but it hasn't been as full-fledged recovery in tech.
00:11:56
Speaker
So if you look at
00:11:57
Speaker
overall, it's still very muted right now.
00:12:00
Speaker
So you see, you know, there's no real strong recovery we're seeing in PCs or smartphones, although every six months it seems like people hope there's some sort of recovery and you don't really see it.
00:12:10
Speaker
So what continues to drive the story is what was we saw in the beginning this year, which is, you know, it's still about initial infrastructure investment.
00:12:17
Speaker
It's driven largely by these big hyperscalers in the U.S. that drive this investment.
00:12:24
Speaker
Hyperscalers being of course very large data centers, right, which require the chips and the servers.
00:12:30
Speaker
I'm going to push back a little bit here.
00:12:31
Speaker
So all these companies are investing in data centers and these sort of things.
00:12:36
Speaker
We even see them now buying nuclear power plants to make sure that they can run these data centers, have the energy right.
00:12:42
Speaker
But if I think about myself, what have I paid?
00:12:45
Speaker
What have I consumed in AI?
00:12:47
Speaker
Actually, I've signed up for an app that's free, and I've signed up for a 30 US dollar open AI thing back home on my computer.
00:12:55
Speaker
So the consumer doesn't seem to pay for it, at least I am not.
00:12:59
Speaker
And all these guys are putting money into it.
00:13:01
Speaker
What is the killer app that right now where companies can actually make money, or do we not know yet?
00:13:07
Speaker
This is probably the million dollar question, right?
00:13:09
Speaker
Because there's been about, if you like collective capex of these big hyperscalers, there's $200 billion a year annually, right?
00:13:17
Speaker
And almost all of that is going into AI infrastructure and investment.
00:13:22
Speaker
But the question is, it's a fair question, is, well, what's the monetization angle?
00:13:26
Speaker
How do these hyperscalers collect money?
00:13:29
Speaker
And the answer is they haven't really given a good answer to the equity markets.
00:13:34
Speaker
I think the message is still pretty much that we can't afford to not keep investing.
00:13:40
Speaker
So you continue to see that the investment cycle remains very strong in terms of
00:13:47
Speaker
ultimately how you monetize.
00:13:49
Speaker
That is a fair question, but that's also why the multiples for some of these AI names isn't that high.
00:13:54
Speaker
Because all these stocks rallied last year when we talked about it, it was very strong until, what was it, April, May this year.
00:14:00
Speaker
So, and then it all faded, right?
00:14:02
Speaker
So, the market is questioning, is there really demand for all these investments?
00:14:06
Speaker
Have there also been regulatory issues
AI's Future: Costs, Infrastructure & Industry Revolution
00:14:08
Speaker
with regards to AI?
00:14:09
Speaker
I mean, regulates come out on privacy or so?
00:14:13
Speaker
Nothing we've seen anything significant yet, right?
00:14:16
Speaker
But I think the bigger question, though, is like, you know, how pervasive is AI when it comes to, you know, besides paying for it and monetizing, is there another angle when it comes to...
00:14:30
Speaker
cost reductions and efficiency.
00:14:33
Speaker
So I'll give you an example.
00:14:35
Speaker
TSMC makes the chips now, right, for AI.
00:14:38
Speaker
Well, they're using AI itself to improve on the design of the chips and manufacturing the chips.
00:14:42
Speaker
So in a way, you're seeing them using AI to improve their own manufacturing.
00:14:46
Speaker
But the costs are rising, right?
00:14:48
Speaker
I mean, I see companies not buying nuclear power plants to secure supply of power to run these data sets.
00:14:55
Speaker
That must be...
00:14:56
Speaker
It's not cheap to buy one of these things, right?
00:14:58
Speaker
Or at least do some kind of agreement with these companies.
00:15:01
Speaker
So the cost of running it should go up, I think.
00:15:04
Speaker
I think, I mean, the cost of, I mean, energy consumption is a problem because part of the reason is to, especially in the U.S., the grid system is so weak, right?
00:15:12
Speaker
And so I think part of that rationale, and that's where you're seeing most of this discussion, is there needs to be an infrastructure upgrade in the U.S., right?
00:15:19
Speaker
Just want to make sure they've got the power coming in.
00:15:21
Speaker
Yeah.
00:15:22
Speaker
On the tech angle, let me give us some examples about, you know, I think last year you told us about how much these chipsets actually cost.
00:15:31
Speaker
For an advanced chipset from one of the best known companies out there, you know, how much, if I wanted to start, you know, buying one of these chips, how much are they, how much would it have cost three years ago, how much would it cost today?
00:15:42
Speaker
Just give us a sense.
00:15:42
Speaker
Give us a bit of an idea how much these things cost from the bottom.
00:15:44
Speaker
What are we talking about here?
00:15:46
Speaker
Yeah, so I think the great analogy we think about is, you know, you take, for example, NVIDIA that everybody looks at.
00:15:54
Speaker
Three years ago, they were just selling their, you know, high-end gaming chips, $2,000 or $3,000 a chip, right?
00:16:01
Speaker
A year later, they were selling these chips for $25,000, so that's a 10x increase.
00:16:06
Speaker
But it didn't stop there.
00:16:07
Speaker
I mean, now they're pushing a new...
00:16:10
Speaker
whole server rack architecture which means you have to buy sometimes over 70 of these chips in one time so your total cost structure now is over two million dollars right so just imagine how much the pricing has increased in the last three years.
00:16:23
Speaker
Are other companies jumping into this because if the profits are so phenomenal for these chip makers there must be all sorts of other companies that are jumping in right?
00:16:31
Speaker
You do see companies trying to find a way to find alternative solutions, but it's just not happening at that scale.
00:16:38
Speaker
So as an example, all these hyperscalers we've talked about, they all are trying to do their own chip.
00:16:44
Speaker
They call them these application-specific chips, right?
00:16:48
Speaker
So they're investing and trying to do their own chip, but what you see is that
00:16:52
Speaker
these chips are still not as competitive.
00:16:54
Speaker
So at the end of the day, even though they're investing and trying to do it, it's not- So there's very high entry barriers to get into that industry.
00:17:01
Speaker
And by the way, producing these chips, you talked about the cost of running the data centers, Harold, at the nuclear power plants.
00:17:08
Speaker
I just learned that in Taiwan, we're of course building now a 2 nanometer fab, and that alone will consume up to 15% of Taiwan's energy production.
00:17:19
Speaker
Just running that one factory, just producing it.
00:17:21
Speaker
There is only one factory.
00:17:22
Speaker
So in Malaysia, the planned data centers, the power that they require is 40% of the total power consumption in Malaysia.
00:17:31
Speaker
You can see that these data centers are just enormously power intensive, right?
00:17:36
Speaker
I'll do you even better.
00:17:38
Speaker
Apparently, in 10 years' time, there is not enough energy in the world, theoretically, to run all the data centers that we're building.
00:17:45
Speaker
Okay, so something is going to break somewhere.
00:17:47
Speaker
It's either power or the data centers, or we're not even using the stuff and the whole industry.
00:17:52
Speaker
But then that goes back to the hardware question, because there's tremendous demand to make these things more efficient, energy efficient.
00:17:59
Speaker
Do you see any breakthroughs coming there?
00:18:02
Speaker
Are the chip companies talking about...
00:18:06
Speaker
just a leap in technology that could maybe reduce the energy intensity and kind of think about the green component here.
00:18:13
Speaker
Do we think of being more environmentally friendly or has that not yet kind of gotten into the AI world?
00:18:20
Speaker
I think what you're seeing is that just the computational power just keeps going up at a much faster rate.
00:18:25
Speaker
So for example, if you think about ChatGPT that I think a lot of people have used, right?
00:18:31
Speaker
Today you can't really use video in ChatGPT, right?
00:18:36
Speaker
But once you start putting video, which is where I think people are looking at ChatGPT 5,
00:18:41
Speaker
the demand computation is going to go up even more, right?
00:18:44
Speaker
And so it just seems like, you know, we're not at a stage where things are going to slow yet.
00:18:49
Speaker
You're talking about
Closing Remarks & Subscription Reminder
00:18:50
Speaker
video.
00:18:50
Speaker
You're talking about make me a two-minute movie about five people sitting on a stage doing a podcast in Hong Kong and something like that will come out.
00:18:59
Speaker
Yeah, I mean... We don't have to do this again next year.
00:19:02
Speaker
We just do this by AI.
00:19:03
Speaker
Yeah, like replace all our jobs, right?
00:19:06
Speaker
Exactly, yeah.
00:19:07
Speaker
Well, this was absolutely fascinating.
00:19:10
Speaker
I think we're running actually out of time, Harold, for our live podcast recording.
00:19:14
Speaker
Of course, we want to thank our audience, our panel members, as well as the audience, of course, for joining us here on the Banyan Tree, where we put Asian economics and markets in context.
00:19:27
Speaker
And of course, another episode drops virtually every week.
00:19:31
Speaker
And you can subscribe to the Under the Banyan Tree podcast to everywhere we get your podcasts, including Apple and Spotify.
00:19:40
Speaker
Thank you very much.
00:19:41
Speaker
Thank you.
00:20:13
Speaker
Thank you for joining us at HSBC Global Viewpoint.
00:20:16
Speaker
We hope you enjoyed the discussion.
00:20:18
Speaker
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