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00:00You've turned bullish on Chinese equities we all know about the regulatory pressures that weighed down on the property sector on tech on gaming on online education. In twenty twenty one. But now the emphasis and the verbiage is coming from the Politburo. The State Council PDC is about supporting and they need growth and they need employment. Is that the main shift in why you become more bullish in Chinese equities. Because the headlines are bad. The economy is bad. The lockdowns have hurt. What's your main thesis on why you're more bullish on Chinese equities now. I think the key driver is actually the US 10 year yield and direction of the dollar index. Last year I think the consensus view to some degree on Chinese equities is because the macro policy is on a very different trajectory. It would have a different sort of a return pattern. And this year we found out what is most important. One is the direction of the 10 year yield. Yeah which MSCI China. And the more liquidity driven onshore indices respond to why the 10 year yield settles and falls back a bit and the US dollar. So I think that's one of the key drivers that we see that are moving in our favor. The other thing you talked about regulations. I think China is going through a period where the fast squirrels is over. And during the fast period of girls nobody knew how to regulate ahead of time. Now there is regulation catch up. Regulatory arbitrage is exactly that. Yes we've seen these regulations in other sectors in telcos in gas but it's happening in a sector that's well owned by global investors. We look at MSCI China the biggest slice is Internet whether it's in part of the discretionary or communication services. And this is also a group that is very good at communicating with the global investor base. So we had a regulatory reset and at this point it's about corporates being able to execute and deliver results. What we're going to get results this week in particular from the likes of Tencent. We're expecting kind of a historic low growth in revenue of about 4 percent is I think the consensus forty point one percent growth. Is this the new normal if you will for these platform companies that had you know did they're so pervasive that they also provided you know a rising tide for all the tech entrepreneurs and startups that has kind of been wiped out as well. So you had all of those IPOs and this like is this a new normal that these companies like on Alibaba in Tencent have to be not only healthily developed but compliant. Exactly. I think you catch the two keywords compliant and healthy. But what is compliant that's being defined. It's rule of law. Yeah. Which has become more and more I would say clarified as the lawmakers go about it. But I think it's fair competition plus public interest. So so it's a learning process. So we'd look back at this market back in 2013 that PBL see learned about the interbank rate as 2015 15 16 effects since then property market. And this is about regulating big platforms that has huge network effect and are effectively consolidating consumption. Yeah they made fragmented consumption happening. Big platforms that are scalable. Yeah. So I think what happens to them is that one they're going to grow less aggressively but there will be more cost cutting and right sizing. And to this will the room for other forms of innovation. Yeah. 3 perhaps in exchange for this right sizing you get a longer period of sustainable growth. Which is compliant. And then also you know healthy. Wendy as long as China's under President Xi Jinping what are the best stocks to own. Don't we all want to know. I think by consolidators she. If you look at the unified marketplace you compare the China less that universities of the US you'll see a lot of sectors just far more fragmented. And one of the challenges for global investors when looking at the universe there's just too many stocks to choose from. So I actually think this unify marketplace is a good directive. And in the next few years we're going to see local government having more issues with financials and perhaps some assets will get consolidated. So when I asked my analysts in different sectors who would benefit from this property is very fragmented industrial mature real even I.T. and healthcare. And so we add the top advocate to our investors to sick stick to the top two top three to five was in the sector that can execute during a soft patch of the economy. And this is where the corporates are going to have a lot of challenges and some of them are going to have to exit. So consolidation you Haslinda Amin. Yeah. What do I want to get one in very quickly here. How much is this is also going to be contingent on a China opening up getting rid of these lock downs and having a pass from Covid 0 2 opening up to the world as well and opening up to itself. Very good question. When we look at the April data the rate of growth in the lockdown areas and the non outbound areas. As night and day in lockdown areas retail sales down 30 percent nationwide down 11 percent. So I think to your question it will be important to see if the central government utilizes the settling down of the Shanghai Omnicom situation as an occasion to standardize some best practices for this war on cold and what it would be. And I think there have been local governments who are very good at dealing with Omnicom. And so I think within a few weeks time perhaps we'll get more understanding on where that stands. Wendy what do you what are your channels telling you as far as the progress on the Chinese and Hong Kong companies listed in the United States. The ADR as the threat for delisting or whether they're going to reach an agreement to open their books to the S.E.C. and that they can remain listed in the United States. Or is that going to be another overhang that's going to be persisting on these tech stocks at least on the idea front in March this was what caused the first capitulation. Right. The idea listing risk. I think the companies and the piece very much would like to get listed in the US and the US market is liquid. Yeah. Has that. And you also have investors have the savvy of understanding a lot of these companies nature. How ever you think the accounting issue has been a contentious and our checks indicate that there's good progress. And I think FATCA was audit cooperation is probably going to help to improve the quality of audit records. And this is going to be something that'll help protect minority shareholder interest and improve corporate governance. You think that will help win back the confidence in the sector. I mean once bitten twice shy. And I think the momentum seems to be as we've seen and and we do know about the calls that we're maybe erroneously kept in the reports of JP Morgan and not about being on investable these tech stocks. How investable are they. If you have reasonable expectations that they're not going to have that kind of explosive growth that we saw with Tencent and with Alibaba we've seen sectors being debated. Right. And the worst case is the telcos have been asked to cut terrorists five years in a row. So they continue to debate. I don't see this kind of draconian measures against the Internet companies. And it's still where a lot of the smartest people are in China. Now out of the 200 plus US listed China the ISE the institutions are probably mostly focused on the top names. Yeah. So you know our approach is you look at you know some vertical sector number one some verticals. Number two. Number three where they can gain market share. At the end of the day it's about execution. Now we sometimes use words interchangeably. And then so you know you have occasions where analysts does very good due diligence and wanted to articulate their independent views. But then at the same time we got to keep track of what's going on and think what I'm sharing with you is our sense that the corporation under FATCA for audit is ongoing. And then we have had the regulatory reset but it's up to the companies for their execution at this point in time.

JPMorgan's Liu on China Market Outlook

Wendy Liu, Chief Asia and China Equity Strategist at JPMorgan, discusses her outlook for Chinese markets. She speaks with Stephen Engle, Rishaad Salamat and Haslinda Amin on the sidelines of the JPMorgan Global China Summit on "Bloomberg Markets Asia". (Source: Bloomberg)

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