April 12, 2024 • 24 mins
Featuring:
Joe Deaux, Bloomberg Metals & Mining Reporter, joins us to discuss the latest on Nippon Steel's deal with US Steel.
Steven Sun, Head of Research at HSBC Qianhai, sits down with us in Hong Kong to talk about China's economy.
Prashant Bhayani, Asia CIO of BNP Paribas Wealth Management, joins the program from Singapore to discuss his APAC market perspectives.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg
Daybreak Asia podcast. I'm Doug Krisner. You can join Brian
Curtis and myself for the stories, making news and moving
markets in the APAC region. You can subscribe to the
show anywhere you get your podcast and always on Bloomberg Radio,
(00:23):
the Bloomberg Terminal, and the Bloomberg Business app.
Speaker 2 (00:26):
Well.
Speaker 1 (00:27):
Tomorrow a big vote for US Steel shareholders. They will
vote on the proposed sale of the company to Nippon Steel.
This deal, needless to say, is proving to be very controversial.
Let's take a closer look now with Joe Doe, Bloomberg's
Medals and Mining reporter. Joe, thanks for being with us.
Is it true that you think the greatest stumbling block
(00:48):
to getting this deal done is the union, the United
steel Workers? Is that a fair statement?
Speaker 3 (00:54):
Yeah?
Speaker 4 (00:54):
Absolutely, it is the union and it has been basically
since a few days after this deal was announced, in
the dust finally settled and people, and by people they
mean Nippon and US Steel started to realize that the
union was not going to go out quietly in this.
Speaker 1 (01:13):
It's very interesting too, because from what I've read and
you're reporting. Nippon has made overtures, put things in writing
to try to allay the concerns that the union has,
talking about more capital investment in some of these older
plants in the States, along with the intention to honor
the union labor agreements. Is Nippon not done enough?
Speaker 3 (01:36):
If you ask the union, they haven't.
Speaker 4 (01:39):
If you ask the shareholders, they feel like Nippon has
done a lot. But I think some of the reporting
that myself and Josh Wingrove, our White House reporter, have
done over the past many months is try to find
what's in between, reading between the lines here, and I
think what's happening is Nippon feels like they've come out
and made the promises they need to to assure that
the union won't have a bunch of workers laid off
(02:02):
and that the mills will stay open. The problem is
they're not being specific enough right in the union.
Speaker 3 (02:07):
Listen, they've seen.
Speaker 4 (02:08):
A lot of jobs lost over the past, you know,
many decades, they've been through this before, and they're saying,
you know, unless you can promise us that these jobs
are going to be here and that these mills are
going to have investments, they're going to keep them around
for another generation. Right.
Speaker 3 (02:22):
I was talking to a number of steel workers who.
Speaker 4 (02:24):
Said this, then it's going to be really hard for
us to agree that you should.
Speaker 3 (02:29):
Be the buyer.
Speaker 1 (02:30):
Japanese Prime Minister of Fumiyo kishid is on a state
visit to the US. One of the things he did highlight,
even though he didn't mention this deal explicitly, he did
say that Japan has a big role in America's economy,
being the largest foreign investor. Did it strike you odd
that Keishita kind of avoided the Nippon Steel US Steel transaction.
Speaker 4 (02:53):
You know, it was something that we had all been
talking about in the weeks leading up to this, whether
or not he.
Speaker 3 (02:57):
Would discuss it. It seems he was.
Speaker 4 (03:00):
One of the reasons that Japan didn't spend much time
dealing with this is because they did feel like there
were other matters that were probably more important on state level.
And you had also had going into this. The President
of the United States, Biden, had come out just the
month before, just a month ago, and said this has
to be American owned and operated, and I support the
(03:20):
American workers. So that took a major hit, Right, You
don't necessarily want to go into a diplomatic meeting in
which a president has made very clear where he stands,
only to kind of hit a brick wall on a
state visit that you know, I mean, this is these
don't come around often.
Speaker 1 (03:36):
I mentioned that tomorrow US Steel shareholders is set to
vote on this proposed sale. Today, according to Politico, the
Ohio Republican Senator jd Vance says that US Deeal may
have misled show shareholders about the risk the federal government
will reject this proposed deal. What is he talking about? Exactly?
Do we know?
Speaker 4 (03:54):
I'm not exactly sure what Centator Evans is getting at,
but I do know that the shareaholder vote is tomorrow.
It is expected that it will be overwhelmingly approved by
the shareholders. There's probably I was talking to a earlier today,
so there's probably going to be ninety seven, ninety eight,
ninety nine percent approval of this deal. For the shareholders,
it's a great deal, fifty five dollars a share, which
(04:16):
is probably ten dollars above what the highest expectation was
before this deal was announced per share.
Speaker 3 (04:23):
And really after that, what.
Speaker 4 (04:25):
Everybody's going to turn their eyes to next is the
sifious review right. The review by siphiuss to whether or
not there's national security concerns in this deal.
Speaker 1 (04:34):
I also understand that the Department of Justice has opened
an anti trust investigation into this deal. What would the
DOJ be looking at?
Speaker 4 (04:43):
Yeah, and you know, my my colleagues and I looked
into this yesterday.
Speaker 3 (04:47):
And what it is is that the DOJ is.
Speaker 4 (04:49):
Doing its job effectively and it is looking at the
assets that Nippon owns and it has to determine if
those assets would pose any sort of anti competitive practices
if they were to ultimately.
Speaker 3 (05:01):
Succeed at buying US steel.
Speaker 4 (05:03):
As we understand it, the review is looking specifically at
a joint venture mill that Nippon Steel runs with Arslar
middle which is the European steelmaker. It's the second largest
steel maker in the world, and the question is whether
or not that would have some sort of issues. The
mill itself doesn't have blast furnaces, it doesn't have it
(05:23):
doesn't actually produce raw steel. It rolls steel that goes
into the automotive market, the construction market.
Speaker 3 (05:29):
And that is what the DOJ is looking into.
Speaker 4 (05:33):
If they determine that there's anti competitive practices, you know,
they might suggest Hey, you have to sell your steak.
Speaker 3 (05:39):
But I think it to be clear, it wasn't that.
Speaker 4 (05:43):
This DOJ investigation is looking at the deal US Steel
and Nipon. It is looking at Nipon's ownership of a
current other mill and how that might affect anti competitive
practices if it ultimately succeeded it buying the US Steel.
Speaker 1 (05:58):
So to circle back to the U Union right now,
we know that they object to this transaction going forward.
Can you imagine a world where the United steel Workers
are able to negotiate something with Nippon Steel and for
this deal to move forward, I think.
Speaker 4 (06:14):
There needs to be a lot from Nippon Steel. I
think we're still deep in the throes of early negotiation.
A lot of people a month ago thought this thing
was dead. Joshuayn Grove and I are big take yesterday
through a lot of reporting we've done, especially over the
past month, show that there is still a path. The
path I think would have to be some significant promises
(06:34):
and specific promises from Nippon of the existing blast blast
furnace mills at US Steel which are run by unionized workers,
and specifics are like are you going to put a
hastra continuous Castor into Mont Valley, or are you going
to do some sort of power generation. What are you
going to go do to the currently idle mills like
Great Lakes and Granite City which still have union workers there.
(06:58):
Right now, Nippon hasn't really gone into specifics, and honestly,
it's because if you think about it, a lot of
companies when they go to buy another company, it's not
like they're doing all their due diligence before they buy
the company.
Speaker 3 (07:09):
They buy the company and then they do more the
due diligence.
Speaker 4 (07:11):
They decide what they're going to keep and what they're
going to upgrade, and that is really what's going on here,
right And the union's like, uh uh, nope, because we
don't want you to buy this thing and then shut
down a bunch of mills where our guys work at
after you've bought us, and then of course done your
due diligence after the fact, because then a lot of
people are left out to dry on the union side. Joe.
Speaker 1 (07:31):
For the longest time, the rival steelmaker in the US,
Cleveland Cliffs, was making a play for US steal. Obviously,
the nip On bid topped what Cleveland Cliffs was attempting
to do very quickly here thirty seconds or so. If
this were to come undone, does it go to Cleveland Cliffs?
Is it that easy?
Speaker 3 (07:49):
No, it's not that easy.
Speaker 4 (07:50):
Cleveland Cliffs could you know, if the deal comes undone,
they could make another bid for it, but they would
still have to go through anti trust concerns.
Speaker 3 (07:57):
Those were the concerns mentioned in the proxy of the deal.
Speaker 4 (08:00):
Well, nip Us Steel said they think there'd have to
be about seven billion dollars of divestitures for a Cliff's
purchase to work Cliffs, I said, I think we think
it would only be two million dollars, but it's obvious
that there would be significant divests that would happen, and
if that even happened, those divestitures would directly impact the
United steel Workers.
Speaker 1 (08:19):
Joe, it's always a pleasure. Thanks for making time to
chat with us on this bid on the part of
a Nippon Steel fourteen point nine billion dollar proposed merger
deal with US Steel. Jod There Bloomberg Medals and Mining
reporter joining us from here in New York City via
zoom on Daybreak Asia. Let's get to our guest from
(08:45):
our Hong Kong Studios. Stephen Soon is with us. Stephen
as head of research at HSBC Chianghai. He joins us
as I mentioned from our perch in HK. Good of
you to join us, Stephen, Thanks so much. We had
an interesting conversation yesterday a couple of our colleagues and
myself around some of the monthly activity data that we're
(09:05):
going to get next week for China, and we focused
on retail sales in particular because we're trying to understand
the health of the Chinese consumer right now. Do you
have a sense about the domestic the story on domestic
demand in China.
Speaker 5 (09:21):
Thanks for having me, Douglas. This is my first Bloomberg
radio experience.
Speaker 1 (09:25):
Excellent.
Speaker 5 (09:27):
So yeah, it's really excited regarding you know, the consumption
grows recovery in China, I would say so far, if
you look at the festival seasons, be it the Chinese
New Year or you know, a couple of days ago,
the Chimming Festival or tomb sweeping festival. In general, the
service related and also catering related consumption grows have surprised
(09:52):
on the upsite and actually quite strong. So that's a
good side of the story, right, But it's really a
case shaped recovery, if you will. On the native side,
you also have, excuse me, the property related consumption items
fairly fairly weak here and probably that you can also
(10:13):
differentiate between the big ticket item and the small ticket item.
And then that's why in general there's still insufficient you know,
domestic demand. And as a result of that, the government
brought up this issue at the two sessions. They talk
about how they're going to roll out a trade in
(10:35):
replacement subsidy programs in the coming days. As late as yesterday,
I think one of the officials run DRC talked about
how Ministry of Commerce is actually actively preparing the document
and could be released in the coming days.
Speaker 1 (10:54):
Is that the cash for clunkers program? I think it's
being called that the replacement of certain household appliance, furniture,
things of that nature.
Speaker 5 (11:03):
Yes, the program will cover a wide range of consumer goods.
You know, you would have a cash for clunker on
the auto side. You would also have subsidy trade in
replacement for home appliance, home furlishing for instance, on the
auto side. That's really you know, quite exciting because if
(11:28):
you look at China, they have like you know, over
probably three hundred million cars on the road, and out
of that eleven million autos they don't really meet with
the emission standard these days. I either fairly old standards
and out of that eleven million, you have seven million
(11:49):
units that's older than fifteen years. I either have pretty
much reached that scrappage you know time. So we don't
know the details yet, i e. The magnitude of subsidy,
but in principle it should be coming from i e.
The central government, local government, and the auto OEM's for instance.
(12:14):
So yeah, hopefully you know, this could be mature enough,
which you know, I think it's quite hopeful to turn
around the story.
Speaker 1 (12:22):
Well, auto sales, what.
Speaker 5 (12:24):
You know, we were talking about single digit, probably one
to two percent decline this year, but with the new program,
most likely this could turn positive.
Speaker 1 (12:33):
I'm glad you're bringing up the ev issue because there's
this sense that there is still so much excess capacity
when it comes to electric vehicles. I know it's something
that the Europeans are concerned about, and recently when Treasury
Secretary Yellen was in China, she talked more broadly just
about the state of industrial overcapacity, but just as it
relates to electric vehicles. Are you concerned that China is
(12:56):
still at a level right now that's going to require
a lot more consolidation and maybe that brings with it
a little bit more pain.
Speaker 5 (13:04):
Yes, I noticed the recent Yellen visit in China. Both
sides clearly exchanged their views very frankly. So the definition
of over capacity, I think, you know, each side probably
has their own definition, right, you know, from Chinese perspective.
It just talked about the US perspective, so if I could,
(13:24):
if I may, the China perspective is that the Chinese manufacturers,
they are entitled to produced for global consumers. So that's
really where the difference is, you know, are whereas you
know Yellen when she talked about the old capacity, she
probably was referring to comparing to domestic consumption. Every single year,
(13:48):
the auto sales in China is about eighteen to twenty
million cars, but the capacity is significantly big than that,
and hence, you know the difference between two countries, and
also the RENWT tension between China and EU as well.
Speaker 1 (14:12):
So help me understand where China is right now in
this AI revolution. I mean, we've focused a lot about
the American companies that are leading in this field, whether
it's an AI proper or some of the beneficiaries like
the chip manufacturer in video. Where is China in this
process of moving into the new stage of artificial intelligence.
Speaker 5 (14:37):
Yeah, frank speaking, it's pretty tough for China, right while
the US has very strict export restrictions in terms of
the type of cheaps AI related chips they can get.
So the computation power side certain, you know, China is
significantly hand decapped. And then that's why in terms of
(14:59):
the foundation models, that's pretty much all coming out of
you know, the Silicon Valley. But the good thing is that, yeah,
a majority of the foundation model we have seen so far,
you know, choose to do open source, which you know
could help Chinese software companies, you know, I T companies
(15:20):
to quickly you know adapt and playing the uh the
catch up, especially in the AI agent you know, i E.
Application side of things.
Speaker 1 (15:30):
Okay, Steven, it was a pleasure to have you on
the program. Congratulations you did so well on your first
visit with us here on day breakas Steven Soon, head
of research at HSB Chianghai, joining us from our studios
in Hong Kong, our guest from our studios in Singapore.
(15:53):
Prashant Bayani asac Io at BNP Paraba Wealth Management. Prashant,
thank you so much for being with us. We were
just talking a moment ago about this taped reading on
overall economic activity in Singapore. Let's begin there. What's your
view on how well the Lion City is doing economically
these days?
Speaker 2 (16:13):
Yeah, if we look at lead indicators, I know the
GDPs just touch under expectations this morning, but thinking about
Singapore is a very open economy, of course, and if
you look at Taiwan, Korea, other export data is starting
to pick up. If you look at China, pmis in particular,
the exports that came out just last week were also
a bit better than expected. So I think from that side,
(16:34):
Singapore was start to benefit in the second half of
the year as we see a manufacturing recovery, and of
course uspmis as well. Ism is above fifty on the
manufacturing side. On the domestic side, of course, we've had
to get through the GST and a little bit of
a blip in inflation, so that we'll see, but we
think unemployments, low consumer spending will continue. So overall we
(17:00):
have a relatively constructive view on growth for the second
half of the year for Singapore.
Speaker 1 (17:04):
I'm glad you mentioned China. Next week we'll get the
monthly activity data for the latest period. Talk to me
a little bit about your understanding of the reliance that
the Singaporean economy has on China. Is that beginning to
decouple in any.
Speaker 2 (17:18):
Way I mean Singapore? Of course, yes, there is a
very strong trade relationship with China or the US, other
parts of osion including Malaysia, so that's going to continue.
It hasn't materially changed, but I think where we've seen
flows create volatility was of course during COVID and the
tourism flows which now are picking up with airline airflight
capacity picking up within the region, so that is a help.
(17:41):
I think overall, Singapore's position is solidified, of course through
COVID in terms of as a regional financial center. Furthermore,
when we think about global growth, it is very geared.
So we just look at the Taiwan export data, we
look at the Korean export data, and we look at
lead indicators like orders to inventory in China, and there
is a correlation between that and Singapore export data. And
(18:04):
Singapore course has a strong electronics semiconductor industry as well,
so we are very much in Singapore reliant on some
of the other countries in the region, and of course
and demand in the West.
Speaker 1 (18:18):
So when it comes to the West, you're managing money
or at least guiding people who have wealth in the
APAC region where to put their money to work. How
are you viewing the US these days?
Speaker 2 (18:30):
Yeah, overall we've actually been overweight global equities, believe in
it since October twenty two when it was not a
consensus call. So we made a good stuck our next out.
We didn't get our next cut off luckily, but overall
within the US we're being more selective on sectors. So
the key is, you know, the MAG seven or Mag
four stocks are really driven returns last year and of
(18:53):
course even year to date, but you're starting to see
if you look under the surface, from say mid January
late January onward, others sectors outperforming. Was the key is
to go higher? We felt for the US market we
need to see a broadening of sector performance. So if
you look at energy, look at materials, you look at healthcare,
look at industrials, these kind of sectors actually have high
(19:14):
the low double digit high single digit returns here to date,
and we think that we need that broadening for the
market to go higher. And indeed that's what drove the
markets in the last six weeks, and tech took a
little bit of a breather. So overall, we think we're
sector driven. And of course last year you could have
been overweight the US, but if you're underweight tech, you
would have underperformed. Flip side Now is we think, yes,
(19:37):
we're we might be neutral tech, but we'll overweight some
of the sectors we just spoke about.
Speaker 1 (19:40):
So is that based on an understanding of the role
that the American government is playing right now and trying
to stimulate the economy the themes that you just laid out,
and I'm hearing you know, maybe evs, maybe infrastructure, healthcare
is in there as well. I mean, is this are
you making a connection between what the federal government and
the is doing and how it may be impacting the economy.
Speaker 2 (20:04):
That's correct. In my career, we've not seen this level
of fiscal stimulus from the US government when unemployment's below
four percent, simple as that. So that does have a
knock on impact on the economy. Construction, if you look
at manufacturing, construction CAPEX in the US, it's really almost
like a hockey stick in terms of compared to the
last twenty years. So yes, of course that plays a
(20:25):
role in terms of some of the sectors we spoke
about on the reshoring side and just general construction and
fiscal stimulus, so it has some impact. And of course
these sectors also were viewed at their old economy sectors
and last year with all the focus on AI, which
of course long term were bullish on as well, these
sectors were left behind. So you know, it reminds me
(20:45):
a little bit and I'm showing my age, but you know,
coming out of two thousand, we don't think we're in
a tech bubble like two thousand, but we saw a
lot of value sectors become cheap by March of two thousand,
So there is something that the fiscal side does help
some of those sectors.
Speaker 1 (21:01):
So when it comes to AI, maybe you know, bubble
is an extreme way of describing what we have seen,
and I don't necessarily think that it's what people are
describing it is, but I think there's a big question
mark when it comes to the ROI for the companies
that are investing in products, let's say made by Nvidia.
They're building out these data centers. The expectation here is
(21:21):
that they can begin training their AI models on whatever
data they choose. But the question is whether or not
there's going to be a benefit, whether the level of
productivity justifies the expense. Is that fair and is something
maybe that you're concerned about.
Speaker 2 (21:37):
Yes, I mean you hit the nail on the head.
It's clear there are productivity benefits. Of course, it could
take maybe longer than we think. There's a lot of
studies on, you know, initially what the prote events could be,
but it's still too early to say. But it's very
clear that these technologies do have both efficiency benefits and
even top line benefits. So if you remember the metaphse,
there was a similar hype at that time, but that
(22:00):
that disappointed somewhat in its rollout period. This is a
little bit different because it creates efficiencies on this services sector.
It's not just manufacturing sector, so that's a little bit different.
So companies, as you know, they're lean and mean, they're
focused on return on investment, so they're going to experiment
and there'll be some i'm sure disappointments, but overall we
think there are benefits longer term, but this plays out
(22:22):
over three, five, ten years, the productivity benefits that come
from AI, and of course the rate of change is accelerating.
But at the same time we'll learn things as things
are rolled out as well that we need to improve.
Speaker 1 (22:38):
So Prime Minister Keishada is in the States talking to
President Biden yesterday at the White House. They unveiled at
kind of some kind of cooperation as it relates to
artificial intelligence. Prashanta very quickly here when it comes to Japan,
is the play something related to technology or is it?
Is it different?
Speaker 2 (22:58):
Yeah, I mean Japan we've been overweight as well for
a long time. I think it's both. Japan has a
strong semiconductor tech industry, but we also like the domestic
economy for economic rebound inbound tourism both and also improving
corporate governance now which is well advertised. But you are
seeing record SHPE share buyback levels in Japan, so we
think for stop pickers it's a great place. Still.
Speaker 1 (23:19):
Pshaw, it was a pleasure to have you on the program.
I hope it is a productive day for you in
Allion City. Prashant Bayani, who is the CIO for Asia
at BNP perry By Wealth Management. Coming to us from
our studios in Singapore. This has been the Bloomberg Daybreak
Asia podcast, bringing you the stories making news and moving
markets in the Asia Pacific. Visit the Bloomberg Podcast channel
(23:40):
on YouTube to get more episodes of this and other
shows from Bloomberg. Subscribe to the podcast on Apple, Spotify,
or anywhere else you listen and always on Bloomberg Radio,
the Bloomberg Terminal, and the Bloomberg Business App.
Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg
Daybreak Asia podcast. I'm Doug Krisner. You can join Brian
Curtis and myself for the stories, making news and moving
markets in the APAC region. You can subscribe to the
show anywhere you get your podcast and always on Bloomberg Radio,
(00:23):
the Bloomberg Terminal, and the Bloomberg Business app.
Speaker 2 (00:26):
Well.
Speaker 1 (00:27):
Tomorrow a big vote for US Steel shareholders. They will
vote on the proposed sale of the company to Nippon Steel.
This deal, needless to say, is proving to be very controversial.
Let's take a closer look now with Joe Doe, Bloomberg's
Medals and Mining reporter. Joe, thanks for being with us.
Is it true that you think the greatest stumbling block
(00:48):
to getting this deal done is the union, the United
steel Workers? Is that a fair statement?
Speaker 3 (00:54):
Yeah?
Speaker 4 (00:54):
Absolutely, it is the union and it has been basically
since a few days after this deal was announced, in
the dust finally settled and people, and by people they
mean Nippon and US Steel started to realize that the
union was not going to go out quietly in this.
Speaker 1 (01:13):
It's very interesting too, because from what I've read and
you're reporting. Nippon has made overtures, put things in writing
to try to allay the concerns that the union has,
talking about more capital investment in some of these older
plants in the States, along with the intention to honor
the union labor agreements. Is Nippon not done enough?
Speaker 3 (01:36):
If you ask the union, they haven't.
Speaker 4 (01:39):
If you ask the shareholders, they feel like Nippon has
done a lot. But I think some of the reporting
that myself and Josh Wingrove, our White House reporter, have
done over the past many months is try to find
what's in between, reading between the lines here, and I
think what's happening is Nippon feels like they've come out
and made the promises they need to to assure that
the union won't have a bunch of workers laid off
(02:02):
and that the mills will stay open. The problem is
they're not being specific enough right in the union.
Speaker 3 (02:07):
Listen, they've seen.
Speaker 4 (02:08):
A lot of jobs lost over the past, you know,
many decades, they've been through this before, and they're saying,
you know, unless you can promise us that these jobs
are going to be here and that these mills are
going to have investments, they're going to keep them around
for another generation. Right.
Speaker 3 (02:22):
I was talking to a number of steel workers who.
Speaker 4 (02:24):
Said this, then it's going to be really hard for
us to agree that you should.
Speaker 3 (02:29):
Be the buyer.
Speaker 1 (02:30):
Japanese Prime Minister of Fumiyo kishid is on a state
visit to the US. One of the things he did highlight,
even though he didn't mention this deal explicitly, he did
say that Japan has a big role in America's economy,
being the largest foreign investor. Did it strike you odd
that Keishita kind of avoided the Nippon Steel US Steel transaction.
Speaker 4 (02:53):
You know, it was something that we had all been
talking about in the weeks leading up to this, whether
or not he.
Speaker 3 (02:57):
Would discuss it. It seems he was.
Speaker 4 (03:00):
One of the reasons that Japan didn't spend much time
dealing with this is because they did feel like there
were other matters that were probably more important on state level.
And you had also had going into this. The President
of the United States, Biden, had come out just the
month before, just a month ago, and said this has
to be American owned and operated, and I support the
(03:20):
American workers. So that took a major hit, Right, You
don't necessarily want to go into a diplomatic meeting in
which a president has made very clear where he stands,
only to kind of hit a brick wall on a
state visit that you know, I mean, this is these
don't come around often.
Speaker 1 (03:36):
I mentioned that tomorrow US Steel shareholders is set to
vote on this proposed sale. Today, according to Politico, the
Ohio Republican Senator jd Vance says that US Deeal may
have misled show shareholders about the risk the federal government
will reject this proposed deal. What is he talking about? Exactly?
Do we know?
Speaker 4 (03:54):
I'm not exactly sure what Centator Evans is getting at,
but I do know that the shareaholder vote is tomorrow.
It is expected that it will be overwhelmingly approved by
the shareholders. There's probably I was talking to a earlier today,
so there's probably going to be ninety seven, ninety eight,
ninety nine percent approval of this deal. For the shareholders,
it's a great deal, fifty five dollars a share, which
(04:16):
is probably ten dollars above what the highest expectation was
before this deal was announced per share.
Speaker 3 (04:23):
And really after that, what.
Speaker 4 (04:25):
Everybody's going to turn their eyes to next is the
sifious review right. The review by siphiuss to whether or
not there's national security concerns in this deal.
Speaker 1 (04:34):
I also understand that the Department of Justice has opened
an anti trust investigation into this deal. What would the
DOJ be looking at?
Speaker 4 (04:43):
Yeah, and you know, my my colleagues and I looked
into this yesterday.
Speaker 3 (04:47):
And what it is is that the DOJ is.
Speaker 4 (04:49):
Doing its job effectively and it is looking at the
assets that Nippon owns and it has to determine if
those assets would pose any sort of anti competitive practices
if they were to ultimately.
Speaker 3 (05:01):
Succeed at buying US steel.
Speaker 4 (05:03):
As we understand it, the review is looking specifically at
a joint venture mill that Nippon Steel runs with Arslar
middle which is the European steelmaker. It's the second largest
steel maker in the world, and the question is whether
or not that would have some sort of issues. The
mill itself doesn't have blast furnaces, it doesn't have it
(05:23):
doesn't actually produce raw steel. It rolls steel that goes
into the automotive market, the construction market.
Speaker 3 (05:29):
And that is what the DOJ is looking into.
Speaker 4 (05:33):
If they determine that there's anti competitive practices, you know,
they might suggest Hey, you have to sell your steak.
Speaker 3 (05:39):
But I think it to be clear, it wasn't that.
Speaker 4 (05:43):
This DOJ investigation is looking at the deal US Steel
and Nipon. It is looking at Nipon's ownership of a
current other mill and how that might affect anti competitive
practices if it ultimately succeeded it buying the US Steel.
Speaker 1 (05:58):
So to circle back to the U Union right now,
we know that they object to this transaction going forward.
Can you imagine a world where the United steel Workers
are able to negotiate something with Nippon Steel and for
this deal to move forward, I think.
Speaker 4 (06:14):
There needs to be a lot from Nippon Steel. I
think we're still deep in the throes of early negotiation.
A lot of people a month ago thought this thing
was dead. Joshuayn Grove and I are big take yesterday
through a lot of reporting we've done, especially over the
past month, show that there is still a path. The
path I think would have to be some significant promises
(06:34):
and specific promises from Nippon of the existing blast blast
furnace mills at US Steel which are run by unionized workers,
and specifics are like are you going to put a
hastra continuous Castor into Mont Valley, or are you going
to do some sort of power generation. What are you
going to go do to the currently idle mills like
Great Lakes and Granite City which still have union workers there.
(06:58):
Right now, Nippon hasn't really gone into specifics, and honestly,
it's because if you think about it, a lot of
companies when they go to buy another company, it's not
like they're doing all their due diligence before they buy
the company.
Speaker 3 (07:09):
They buy the company and then they do more the
due diligence.
Speaker 4 (07:11):
They decide what they're going to keep and what they're
going to upgrade, and that is really what's going on here,
right And the union's like, uh uh, nope, because we
don't want you to buy this thing and then shut
down a bunch of mills where our guys work at
after you've bought us, and then of course done your
due diligence after the fact, because then a lot of
people are left out to dry on the union side. Joe.
Speaker 1 (07:31):
For the longest time, the rival steelmaker in the US,
Cleveland Cliffs, was making a play for US steal. Obviously,
the nip On bid topped what Cleveland Cliffs was attempting
to do very quickly here thirty seconds or so. If
this were to come undone, does it go to Cleveland Cliffs?
Is it that easy?
Speaker 3 (07:49):
No, it's not that easy.
Speaker 4 (07:50):
Cleveland Cliffs could you know, if the deal comes undone,
they could make another bid for it, but they would
still have to go through anti trust concerns.
Speaker 3 (07:57):
Those were the concerns mentioned in the proxy of the deal.
Speaker 4 (08:00):
Well, nip Us Steel said they think there'd have to
be about seven billion dollars of divestitures for a Cliff's
purchase to work Cliffs, I said, I think we think
it would only be two million dollars, but it's obvious
that there would be significant divests that would happen, and
if that even happened, those divestitures would directly impact the
United steel Workers.
Speaker 1 (08:19):
Joe, it's always a pleasure. Thanks for making time to
chat with us on this bid on the part of
a Nippon Steel fourteen point nine billion dollar proposed merger
deal with US Steel. Jod There Bloomberg Medals and Mining
reporter joining us from here in New York City via
zoom on Daybreak Asia. Let's get to our guest from
(08:45):
our Hong Kong Studios. Stephen Soon is with us. Stephen
as head of research at HSBC Chianghai. He joins us
as I mentioned from our perch in HK. Good of
you to join us, Stephen, Thanks so much. We had
an interesting conversation yesterday a couple of our colleagues and
myself around some of the monthly activity data that we're
(09:05):
going to get next week for China, and we focused
on retail sales in particular because we're trying to understand
the health of the Chinese consumer right now. Do you
have a sense about the domestic the story on domestic
demand in China.
Speaker 5 (09:21):
Thanks for having me, Douglas. This is my first Bloomberg
radio experience.
Speaker 1 (09:25):
Excellent.
Speaker 5 (09:27):
So yeah, it's really excited regarding you know, the consumption
grows recovery in China, I would say so far, if
you look at the festival seasons, be it the Chinese
New Year or you know, a couple of days ago,
the Chimming Festival or tomb sweeping festival. In general, the
service related and also catering related consumption grows have surprised
(09:52):
on the upsite and actually quite strong. So that's a
good side of the story, right, But it's really a
case shaped recovery, if you will. On the native side,
you also have, excuse me, the property related consumption items
fairly fairly weak here and probably that you can also
(10:13):
differentiate between the big ticket item and the small ticket item.
And then that's why in general there's still insufficient you know,
domestic demand. And as a result of that, the government
brought up this issue at the two sessions. They talk
about how they're going to roll out a trade in
(10:35):
replacement subsidy programs in the coming days. As late as yesterday,
I think one of the officials run DRC talked about
how Ministry of Commerce is actually actively preparing the document
and could be released in the coming days.
Speaker 1 (10:54):
Is that the cash for clunkers program? I think it's
being called that the replacement of certain household appliance, furniture,
things of that nature.
Speaker 5 (11:03):
Yes, the program will cover a wide range of consumer goods.
You know, you would have a cash for clunker on
the auto side. You would also have subsidy trade in
replacement for home appliance, home furlishing for instance, on the
auto side. That's really you know, quite exciting because if
(11:28):
you look at China, they have like you know, over
probably three hundred million cars on the road, and out
of that eleven million autos they don't really meet with
the emission standard these days. I either fairly old standards
and out of that eleven million, you have seven million
(11:49):
units that's older than fifteen years. I either have pretty
much reached that scrappage you know time. So we don't
know the details yet, i e. The magnitude of subsidy,
but in principle it should be coming from i e.
The central government, local government, and the auto OEM's for instance.
(12:14):
So yeah, hopefully you know, this could be mature enough,
which you know, I think it's quite hopeful to turn
around the story.
Speaker 1 (12:22):
Well, auto sales, what.
Speaker 5 (12:24):
You know, we were talking about single digit, probably one
to two percent decline this year, but with the new program,
most likely this could turn positive.
Speaker 1 (12:33):
I'm glad you're bringing up the ev issue because there's
this sense that there is still so much excess capacity
when it comes to electric vehicles. I know it's something
that the Europeans are concerned about, and recently when Treasury
Secretary Yellen was in China, she talked more broadly just
about the state of industrial overcapacity, but just as it
relates to electric vehicles. Are you concerned that China is
(12:56):
still at a level right now that's going to require
a lot more consolidation and maybe that brings with it
a little bit more pain.
Speaker 5 (13:04):
Yes, I noticed the recent Yellen visit in China. Both
sides clearly exchanged their views very frankly. So the definition
of over capacity, I think, you know, each side probably
has their own definition, right, you know, from Chinese perspective.
It just talked about the US perspective, so if I could,
(13:24):
if I may, the China perspective is that the Chinese manufacturers,
they are entitled to produced for global consumers. So that's
really where the difference is, you know, are whereas you
know Yellen when she talked about the old capacity, she
probably was referring to comparing to domestic consumption. Every single year,
(13:48):
the auto sales in China is about eighteen to twenty
million cars, but the capacity is significantly big than that,
and hence, you know the difference between two countries, and
also the RENWT tension between China and EU as well.
Speaker 1 (14:12):
So help me understand where China is right now in
this AI revolution. I mean, we've focused a lot about
the American companies that are leading in this field, whether
it's an AI proper or some of the beneficiaries like
the chip manufacturer in video. Where is China in this
process of moving into the new stage of artificial intelligence.
Speaker 5 (14:37):
Yeah, frank speaking, it's pretty tough for China, right while
the US has very strict export restrictions in terms of
the type of cheaps AI related chips they can get.
So the computation power side certain, you know, China is
significantly hand decapped. And then that's why in terms of
(14:59):
the foundation models, that's pretty much all coming out of
you know, the Silicon Valley. But the good thing is that, yeah,
a majority of the foundation model we have seen so far,
you know, choose to do open source, which you know
could help Chinese software companies, you know, I T companies
(15:20):
to quickly you know adapt and playing the uh the
catch up, especially in the AI agent you know, i E.
Application side of things.
Speaker 1 (15:30):
Okay, Steven, it was a pleasure to have you on
the program. Congratulations you did so well on your first
visit with us here on day breakas Steven Soon, head
of research at HSB Chianghai, joining us from our studios
in Hong Kong, our guest from our studios in Singapore.
(15:53):
Prashant Bayani asac Io at BNP Paraba Wealth Management. Prashant,
thank you so much for being with us. We were
just talking a moment ago about this taped reading on
overall economic activity in Singapore. Let's begin there. What's your
view on how well the Lion City is doing economically
these days?
Speaker 2 (16:13):
Yeah, if we look at lead indicators, I know the
GDPs just touch under expectations this morning, but thinking about
Singapore is a very open economy, of course, and if
you look at Taiwan, Korea, other export data is starting
to pick up. If you look at China, pmis in particular,
the exports that came out just last week were also
a bit better than expected. So I think from that side,
(16:34):
Singapore was start to benefit in the second half of
the year as we see a manufacturing recovery, and of
course uspmis as well. Ism is above fifty on the
manufacturing side. On the domestic side, of course, we've had
to get through the GST and a little bit of
a blip in inflation, so that we'll see, but we
think unemployments, low consumer spending will continue. So overall we
(17:00):
have a relatively constructive view on growth for the second
half of the year for Singapore.
Speaker 1 (17:04):
I'm glad you mentioned China. Next week we'll get the
monthly activity data for the latest period. Talk to me
a little bit about your understanding of the reliance that
the Singaporean economy has on China. Is that beginning to
decouple in any.
Speaker 2 (17:18):
Way I mean Singapore? Of course, yes, there is a
very strong trade relationship with China or the US, other
parts of osion including Malaysia, so that's going to continue.
It hasn't materially changed, but I think where we've seen
flows create volatility was of course during COVID and the
tourism flows which now are picking up with airline airflight
capacity picking up within the region, so that is a help.
(17:41):
I think overall, Singapore's position is solidified, of course through
COVID in terms of as a regional financial center. Furthermore,
when we think about global growth, it is very geared.
So we just look at the Taiwan export data, we
look at the Korean export data, and we look at
lead indicators like orders to inventory in China, and there
is a correlation between that and Singapore export data. And
(18:04):
Singapore course has a strong electronics semiconductor industry as well,
so we are very much in Singapore reliant on some
of the other countries in the region, and of course
and demand in the West.
Speaker 1 (18:18):
So when it comes to the West, you're managing money
or at least guiding people who have wealth in the
APAC region where to put their money to work. How
are you viewing the US these days?
Speaker 2 (18:30):
Yeah, overall we've actually been overweight global equities, believe in
it since October twenty two when it was not a
consensus call. So we made a good stuck our next out.
We didn't get our next cut off luckily, but overall
within the US we're being more selective on sectors. So
the key is, you know, the MAG seven or Mag
four stocks are really driven returns last year and of
(18:53):
course even year to date, but you're starting to see
if you look under the surface, from say mid January
late January onward, others sectors outperforming. Was the key is
to go higher? We felt for the US market we
need to see a broadening of sector performance. So if
you look at energy, look at materials, you look at healthcare,
look at industrials, these kind of sectors actually have high
(19:14):
the low double digit high single digit returns here to date,
and we think that we need that broadening for the
market to go higher. And indeed that's what drove the
markets in the last six weeks, and tech took a
little bit of a breather. So overall, we think we're
sector driven. And of course last year you could have
been overweight the US, but if you're underweight tech, you
would have underperformed. Flip side Now is we think, yes,
(19:37):
we're we might be neutral tech, but we'll overweight some
of the sectors we just spoke about.
Speaker 1 (19:40):
So is that based on an understanding of the role
that the American government is playing right now and trying
to stimulate the economy the themes that you just laid out,
and I'm hearing you know, maybe evs, maybe infrastructure, healthcare
is in there as well. I mean, is this are
you making a connection between what the federal government and
the is doing and how it may be impacting the economy.
Speaker 2 (20:04):
That's correct. In my career, we've not seen this level
of fiscal stimulus from the US government when unemployment's below
four percent, simple as that. So that does have a
knock on impact on the economy. Construction, if you look
at manufacturing, construction CAPEX in the US, it's really almost
like a hockey stick in terms of compared to the
last twenty years. So yes, of course that plays a
(20:25):
role in terms of some of the sectors we spoke
about on the reshoring side and just general construction and
fiscal stimulus, so it has some impact. And of course
these sectors also were viewed at their old economy sectors
and last year with all the focus on AI, which
of course long term were bullish on as well, these
sectors were left behind. So you know, it reminds me
(20:45):
a little bit and I'm showing my age, but you know,
coming out of two thousand, we don't think we're in
a tech bubble like two thousand, but we saw a
lot of value sectors become cheap by March of two thousand,
So there is something that the fiscal side does help
some of those sectors.
Speaker 1 (21:01):
So when it comes to AI, maybe you know, bubble
is an extreme way of describing what we have seen,
and I don't necessarily think that it's what people are
describing it is, but I think there's a big question
mark when it comes to the ROI for the companies
that are investing in products, let's say made by Nvidia.
They're building out these data centers. The expectation here is
(21:21):
that they can begin training their AI models on whatever
data they choose. But the question is whether or not
there's going to be a benefit, whether the level of
productivity justifies the expense. Is that fair and is something
maybe that you're concerned about.
Speaker 2 (21:37):
Yes, I mean you hit the nail on the head.
It's clear there are productivity benefits. Of course, it could
take maybe longer than we think. There's a lot of
studies on, you know, initially what the prote events could be,
but it's still too early to say. But it's very
clear that these technologies do have both efficiency benefits and
even top line benefits. So if you remember the metaphse,
there was a similar hype at that time, but that
(22:00):
that disappointed somewhat in its rollout period. This is a
little bit different because it creates efficiencies on this services sector.
It's not just manufacturing sector, so that's a little bit different.
So companies, as you know, they're lean and mean, they're
focused on return on investment, so they're going to experiment
and there'll be some i'm sure disappointments, but overall we
think there are benefits longer term, but this plays out
(22:22):
over three, five, ten years, the productivity benefits that come
from AI, and of course the rate of change is accelerating.
But at the same time we'll learn things as things
are rolled out as well that we need to improve.
Speaker 1 (22:38):
So Prime Minister Keishada is in the States talking to
President Biden yesterday at the White House. They unveiled at
kind of some kind of cooperation as it relates to
artificial intelligence. Prashanta very quickly here when it comes to Japan,
is the play something related to technology or is it?
Is it different?
Speaker 2 (22:58):
Yeah, I mean Japan we've been overweight as well for
a long time. I think it's both. Japan has a
strong semiconductor tech industry, but we also like the domestic
economy for economic rebound inbound tourism both and also improving
corporate governance now which is well advertised. But you are
seeing record SHPE share buyback levels in Japan, so we
think for stop pickers it's a great place. Still.
Speaker 1 (23:19):
Pshaw, it was a pleasure to have you on the program.
I hope it is a productive day for you in
Allion City. Prashant Bayani, who is the CIO for Asia
at BNP perry By Wealth Management. Coming to us from
our studios in Singapore. This has been the Bloomberg Daybreak
Asia podcast, bringing you the stories making news and moving
markets in the Asia Pacific. Visit the Bloomberg Podcast channel
(23:40):
on YouTube to get more episodes of this and other
shows from Bloomberg. Subscribe to the podcast on Apple, Spotify,
or anywhere else you listen and always on Bloomberg Radio,
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