Transcript
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.
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Speaker: And now onto today's show.
Speaker: This podcast was recorded for publication on the 7th of March 2025 by HSBC Global Research.
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Speaker: Hello, I'm P.S.
Speaker: Butler and welcome to The Macrobrief, our weekly look at the issues influencing financial markets around the world.
Speaker: And on today's podcast, we're talking about all things Asia.
Speaker: And that's because I have a special guest with me here in the studio.
Speaker: Fred Newman, our chief Asia economist and co-host of our sister podcast, Under the Banyan Tree, is in London meeting clients and has kindly taken some time out for a chat.
Speaker: Fred, great to see you and welcome to the Macrobrief.
Speaker: Wonderful to be here in the Macrobrief headquarters globally in London.
Speaker: So really great.
Speaker: And thank you for making the time.
Speaker: I guess maybe chief Asia economist, that's a big remit.
Speaker: How do you keep tabs on so many different economies?
Speaker: It takes a lot of reading, a lot of staying on top of the news.
Speaker: And one of the things is the region is so diverse, right?
Speaker: If you think about developed markets like Japan, Australia, there are sets of difficulties and challenges that are completely different from some of the emerging markets like, say, Sri Lanka, Bangladesh.
Speaker: So it's very, very diverse.
Speaker: But I love that and thrive on that.
Speaker: But, of course, the main story always is China, China, China.
Speaker: Well, before we go on to China, which we will do, you've been looking at Asia for quite a few years and seen many ups and downs.
Speaker: Perhaps we should distinguish between cyclical and secular trends.
Speaker: So for starters, here's a big question for you.
Speaker: How has Asia changed since the Asia crisis of 1997?
Speaker: I am unfortunately old enough to remember that that was pretty cataclysmic.
Speaker: It was kind of crisp mix, so 1997, big crisis across many economies across Asia, and it sort of ingrained a degree of caution among policymakers in Asia.
Speaker: So we had a lot of macro vulnerabilities back then.
Speaker: Capital left the region, the exchange rates collapsed.
Speaker: Today, they've managed it much more cautiously.
Speaker: So they build up foreign exchange reserves, they strengthen the banking system,
Speaker: And so still today, this is almost 30 years later, we've actually have a lot of the resilience to see in Asian economies is back because of that, those decisions that were taken in the aftermath of the Asian financial crisis to essentially strengthen regulations and strengthen the banking systems.
Speaker: And so we went through the global financial crisis, we went through the pandemic, actually relatively unscathed because of that.
Speaker: makes it a much more investable region.
Speaker: It does much more investable, certainly, we would argue that.
Speaker: And so the stability is obviously quite attractive.
Speaker: But what it used to be also back then, and we're not talking in the 1990s, we're dating ourselves here, Piers.
Speaker: is that mostly it was Western capital that flowed into Asia and got invested.
Speaker: Now there's a lot of capital within Asia that gets invested across borders because Asia actually now has excess capital.
Speaker: And so you're seeing investors from Korea investing in Vietnam, and you have Thai investors investing in Malaysia.
Speaker: And so it's much more intra-regional.
Speaker: And that's a key change really to 30 years ago.
Speaker: So you mentioned China earlier in the conversation, and obviously China has been the engine of growth for the region, but that engine has been spluttering of late?
Speaker: Are the days of 8% to 10% GDP growth over?
Speaker: So 8% to 10% is probably a bit of a stretch for China.
Speaker: But to be honest, it doesn't need to grow 8% to 10% anymore.
Speaker: It's a large economy.
Speaker: We often underestimate how big this economy really is, second largest economy in the world.
Speaker: And even if they grow at, say, 4%, which they're not.
Speaker: They're growing at 5% last year.
Speaker: But let's say just 4%.
Speaker: that would still add more GDP than what the U.S. adds every single year.
Speaker: And so, you know, there is a lot of growth still coming through because the size is so large.
Speaker: That point of scale was one that I guess is worth making in the context of India, where there's been a lot of focus.
Speaker: It's been seen as a new engine.
Speaker: But as you say, it's a question of scale.
Speaker: It can't replace China, at least not in the foreseeable future.
Speaker: So first thing you say is India is a fantastic story in its own right, growing very rapidly, rising middle class.
Speaker: That's sort of what we like about these dynamic Asian markets.
Speaker: But if you look at the difference in size between China and India,
Speaker: It's actually that difference is 15 trillion U.S. dollars, which is the size of the Eurozone economy.
Speaker: This is a large difference just between the two.
Speaker: Now, also, if you assume India grows 7% in the next 10 years and China 3.5%, actually that gap will still grow because China is just so much larger and even if it grows more slowly, it just adds more GDP every single year.
Speaker: Now, I am a fan of under the banning tree, but I also love watching your charts of the week.
Speaker: And the good news for our listeners is that they can also do that by following you on LinkedIn, where you post this and other freely accessible content.
Speaker: So do make sure you follow Fred.
Speaker: Anyway, I thought the recent one on tariffs was really interesting in illustrating that China isn't that exposed to tariffs from the US, although maybe beware of secondary effects.
Speaker: Well, first of all, thanks for the plug, Piers.
Speaker: Yeah, it's actually right.
Speaker: So if you look at China's exposure to the U.S. market in terms of China's GDP, it's only 2.5% of China's economy is dependent on the U.S. Which is really small, really.
Speaker: Which is really small, which means 97.5% is dependent on the rest of the world, right?
Speaker: So now that doesn't mean it's negligible.
Speaker: We can ignore this.
Speaker: It certainly would.
Speaker: hurt in the short term if there's U.S. tariffs on imports from China.
Speaker: But really in the medium term, you could say, well, actually, China doesn't really need the U.S. anymore.
Speaker: And that's how things have changed over the last 20 years.
Speaker: China is just less exposed to the U.S. than it used to be.
Speaker: What about this point you made about tariff cascade?
Speaker: What does that mean?
Speaker: So from China's perspective, the rest of the world is five times as important as exports to the US.
Speaker: And so if you look at the world from a Beijing perspective, you can say, well, if the US imposes tariffs,
Speaker: maybe we can live with that long term.
Speaker: But because we export so much to the rest of the world, there's a risk that if they start to impose tariffs, then really it starts to be a challenge for China's economy.
Speaker: Now, a tariff cascade would essentially be that the US imposes a tariff, then Chinese exporters redirect exports to other markets, and these other markets then feel the pressure to raise tariffs themselves.
Speaker: So from Beijing's perspective,
Speaker: the risk would be a tariff cascade that the US starts with these pesky tariffs and everybody else then follows suit.
Speaker: Now, we don't necessarily believe that will happen, but that's certainly a risk worth keeping in mind.
Speaker: So in your client meetings this week, what's the mood?
Speaker: To paraphrase one of our reports, do they think that China is off the canvas?
Speaker: Now, that's where things get really interesting, because a year ago, particularly equity investors said, oh, China is uninvestable.
Speaker: But what happened this year, China has outperformed the U.S. market.
Speaker: Actually, equity investors are looking at China again and seeing technology companies like the DeepSeek announcement, for example, this new market.
Speaker: Chinese-built artificial intelligence kind of software has sort of started to make investors think about China again.
Speaker: And suddenly there's a realization, hey, there's a second biggest economy in the world that's very innovative.
Speaker: Maybe we should take another look at it.
Speaker: And so that's where we see perhaps that it's nudging back onto the canvas after two years of being a little bit ignored.
Speaker: Yeah, and everything eventually sort of bottoms out.
Speaker: So could we say that the property market is starting to see a bit of a bottom?
Speaker: Yeah, a little bit of green shoots there if you look closely.
Speaker: You know, we wouldn't call them weeds.
Speaker: We call them green shoots.
Speaker: So look, this is arguably the world's largest property market going through an enormous adjustment cycle.
Speaker: And this takes years to play itself out.
Speaker: But it looks like we're through most of that adjustment.
Speaker: It's no longer getting any worse, I guess, which is already a positive.
Speaker: So, yeah.
Speaker: So it's not necessarily getting worse.
Speaker: There's signs of stabilization in some of the first, what we call the first-tier markets, the larger cities in China have seen already a bit more demand pick up at the margin.
Speaker: But look, make no mistake, this doesn't mean that by tomorrow Chinese property is going to fly off the shelves again.
Speaker: But it is probably starting to heal itself very, very gradually, and that's a big deal.
Speaker: because it's like taking the handbrake off of China's GDP growth a little bit.
Speaker: So coming back to secular trends, one that you've looked at is demographics.
Speaker: Your co-host, Harold van der Linde, the flying Dutchman, is a particular expert.
Speaker: For countries such as China and Korea, is that going to be a major challenge for long-term growth?
Speaker: Absolutely.
Speaker: Absolutely.
Speaker: The demographics are...
Speaker: returning very rapidly, more so in Korea than in China at the moment.
Speaker: So Korea is among the fastest aging societies in the world.
Speaker: China is getting up there as well.
Speaker: So the population is aging very quickly.
Speaker: The working age population is really the number of people who are at the age where they can work and contribute to GDP is already shrinking.
Speaker: And that makes it very hard to achieve, say, 8% or 10% GDP growth.
Speaker: Doesn't mean you can't grow at all, but that kind of reduces your speed limit.
Speaker: And that's one thing we watch very closely.
Speaker: The other one is it also affects the composition of spending, for example.
Speaker: So if you think about a young population needs education and toys and that type of goods, but an older population needs maybe more medical care, needs more travel.
Speaker: And so you see these change in consumer spending patterns coming through as well.
Speaker: And of course, we shouldn't just think about demographic change as negative overall.
Speaker: there's plenty of opportunities underneath the surface that one could look at.
Speaker: Yes, that's what Harold talks about when he says empty nesters, that the older population build up a pot of savings.
Speaker: And actually, for financial markets, that could be quite a positive trend.
Speaker: Yes, so the empty nesters, that's because Mr. Harold van der Linde is an empty nester himself.
Speaker: We should define the term that's really, you know, when you hit your 50s, no secret there, Harold...
Speaker: that your child is leaving home.
Speaker: And so you have the parents have empty nest.
Speaker: That means their disposable income is going up.
Speaker: They're still working and suddenly you don't have to care for a child anymore.
Speaker: A child is off earning money, ideally themselves as well.
Speaker: And so that means that maybe you enjoy the finer things in life a little bit.
Speaker: And as Harold would put it, you buy a slightly nicer bottle of wine.
Speaker: You treat your wife to a nice meal or restaurant every once in a while.
Speaker: And of course, in aggregate,
Speaker: That matters, and that's an opportunity.
Speaker: And you see that in some of the microdata come through.
Speaker: These empty nesters, these millions of parents in China who've seen their kids finally leave home and are starting to, well, spend a bit more.
Speaker: I have to say I'm an empty nester, although one of the other trends that I've contended with is the boomerang generation where they come back quite frequently.
Speaker: Yeah, of course.
Speaker: And disposable income goes down again.
Speaker: And so you go back and forth, I guess.
Speaker: So you've got to enjoy the empty nester periods in between.
Speaker: Take advantage of it.
Speaker: So in three weeks time, it will be my turn to visit you in Hong Kong when we'll be staging our second global investment summit.
Speaker: Last year, it really felt like Hong Kong was back after the COVID lockdowns.
Speaker: What's the mood going to be like in three weeks time in Hong Kong?
Speaker: You'll find a lot of optimism actually in Hong Kong.
Speaker: And it has to do with the fact that China, Hong Kong,
Speaker: Hong Kong financial market a little bit back on the map of investors' interest because, yeah, there is stuff happening in a technology space in China.
Speaker: And so people are taking another look at it.
Speaker: And that's why I think you'll find a bit more upbeat mood there compared to maybe a year ago.
Speaker: And, yeah, we'll welcome you and many others to come to this Global Investment Summit in Hong Kong.
Speaker: And we'll try to show Hong Kong from its best side.
Speaker: Well, I very much look forward to it.
Speaker: Until then, Fred, safe travels, and thank you very much for joining us today.
Speaker: Thank you, Piers.
Speaker: Let's finish with three highlights from global research.
Speaker: Tariff risks continue to move markets, and here at Global Research, our analysis into the potential impact continues.
Speaker: We've recently published reports assessing the implications for emerging market currencies, European bonds, U.S. automakers, as well as regional equity markets, and more.
Speaker: Elsewhere, we've released the latest edition of Talking Points.
Speaker: This is our monthly look at the key reports covering our nine themes and areas of strength, such as sustainability.
Speaker: Included this month are pieces on tariffs and trade, artificial intelligence, the UK consumer, future cities in the Gulf, energy policy, and China automation.
Speaker: And finally, for more details on that Global Investment Summit, or for any questions about anything we've talked about today, please email askresearch at hsbc.com.
Speaker: So that brings this edition of the Macro Brief to a close.
Speaker: From all of us here, thanks for listening.
Speaker: We'll be back again next week.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
