haidi: and there good morning to you. i'm haidi stroud-watts in sydney. asia's major markets have just opened for trade. live pictures as tokyo markets resume trading for the year after being closed for just about a week for christmas. open: it could be a brutal as we have seen huge global selloff's all across the world. good evening bloomberg's global headquarters in new york. i am shery ahn. welcome to "daybreak asia."

our top stories this friday, asian stocks set to slip as japan trade for the first time this year after apple's warning sank u.s.actory data stocks. the iphone maker tumbled 10% with its asian suppliers, bracing for another difficult day. the trump trade war advantage slips as the white house warns of more pain for china companies. haidi: painful start to the beginning of trading in tokyo as we saw with some ceremony and optimism. we had japan markets coming back online for the first time this year, back online and downward trading. we have seen the nikkei 225 down by 1.7%, the topics up -- topix up. to carry on a torrid end to the year. may were falling into the bear market late in the year. joining this sense of investor malaise as we get macro concerns

over japan. trade pretty much exposed when you talk about that global supply chain. we are watching the apple story. talking about the likes of japan display errors, modules as well as electronics. these stocks will be playing catch-up in terms of the pent-up selling demand that we saw play out for the rest of the asian suppliers in taipei and seoul and hong kong yesterday. the crosby pretty flat open to the day. we are seeing continued extended declines. aussie shares -- the kospi pretty flat open to the day. we are seeing continued extended declines. new zealand off by .6% as well. let's take a look, it closer look at what we're watching as we get underway. japan have been dealt with a flash crash with the sx story yesterday, the pent-up selling as we spoke about with the apple

story, not getting off to a great start. 1.7% down is not a bad start considering. haidi: i like it. >> the futures were looking more than 2% down, but the yen ened aly weak little bit, so there might be a bit of a sense from japanese traders that things went a little bit too far in part of what went on yesterday was a combination of poor liquidity and japanese retail trades getting caught out very badly, is slightly more relaxed breakdown today, but still very weak across the asia-pacific. it's hard to see too much of a catalyst for a turnaround. apple extended declines and the isam overnight was really poor.

shery: but still, it was pretty resilient when it came to the thursday session. i mean, we did see declines, but they were pretty moderate. cannot resilience sustain this friday -- can that resilience sustain this friday? garfield: asia got hit so much harder than the u.s. for much of last year, so you know, what seems like fresh pain from a u.s. perspective is old news for asia. is there a catalyst for the turnaround? in fact, part of the worry for what went on with apple overnight is precisely that the u.s. is catching down to the global economic malaise. we have a chart in the dtd library that i hope we can bring up for you. i took a look at that isn gauge i mentioned overnight that had its biggest drop in a very long time, the gauge of manufacturing of the u.s.. that dropped down and if you look at that gauge and apple's share price, they chat together pretty well. -- track together pretty well.

that validates the idea that apple is more than just, you know, even a very big company. you know, the iphone maker. iphones have only been around for 11.5 years or so and in that time, their success has both been at the forefront of the u.s. economic recovery -- once the sometime crisis -- some gonerime crisis had -- and age am so much into iphones it is a manufacturer world in and of itself. you don't so much in the way of cameras anymore. you cell phones. you don't sell records anymore. you sell music to iphone users and through iphones. , it is hard to imagine a world in which apple does badly in the u.s. economy does well -- and the u.s.

economy does well. and when you take the problems we have had with the chinese economy, and by the way, apple is blaming china for a big part of its concerns right now, that just adds to the sense -- we got to the end of last year and have carried over to the beginning of this year, that we have got a global economy having difficulties at a time when we also had the trade wars, we had overall inspired impasse u.s. funding, and by the way, we have also gotten italy and brexit and all of that. so there are a lot of uncertainties out there and what has gone on with apple in the manufacturing gauges, but the u.s. adds to all of that. it has got investors saying it's 2019 which starts well. were hoping when 2019. going, we could put some back in. it looks like we should have taken more out so we will take some more out now. shery: we got week surveys --

partservice coming out of of the world. we have more pmi data today out of asia as well. garfield: we have the hong kong and singapore pmi's and those will be very interesting because they are such important trading hubs. the important links between china and the rest of the world. and singapore, a lot of electronics. they had some data out overnight on the electronics sector that was not that great, so strap yourselves in. it could be another nasty session. we have also got, you know, looming over everything, u.s. payrolls. speak with got some jay powell and janet yellen being interviewed out of the economic events, so that might give some insights in the u.s. into where we are going with the yield curve and with the fed outlook.

that has deteriorated massively as the outlook has deteriorated. shery: garfield, thank you so much. it can find his charts on the gtv library. gtv on the bloomberg. by now, the nikkei falling 3%, more than 3% at the moment, which is the biggest fall since december 25, christmas day, and adding to about 10% slide back in december and also to that first slump, first annual sum, since 2011, for japan's nikkei index. playing a little bit of catch-up after coming back from a weeklong holiday, but first, it is trading session of 2019 let's get the first word news with ed ludlow. shery, the trade war with u.s. will force many companies to join apple in announcing lower-than-expected earnings. kevin told cnn downgrades will keep coming until there is a deal with beijing.

a u.s. -- chinese trade official said he is optimistic that he wants china will not negotiate on anything that threatens its core national interests. the state department is wanting americans against traveling to china. an official advisory warns chinese users have arbitrary enforcement of local laws and says china can use exit bans coercively and does not recognize dual nationality. china will cut the reserve requirement ratio and improve funding conditions this month as liquidity tightens towards the spring festival holiday. funding demands will total around $625 billion in january while mainland residents withdraw more than $140 billion in cash. the pboc will inject a

significant amount of cheap money. japan's nikkei news has reported new allegations against carlos ghosn. the paper says ghosn used a special nissan fund to -- it is unclear what the payments were four. ghosn has been accused of understating his pay and breach of crust. he has been in custody since the middle of november. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am ed ludlow. this is bloomberg. >> thank you. still ahead, u.s.-china trade talks are set to resume in beijing. we will find out why global trade may still expand in 2019. the global factory slowdown is still a major factor. we will be asking whether it is enough to convince a fed to change its policy course. this is bloomberg. ♪

haidi: this is "daybreak asia." i'm haidi stroud-watts in sydney. shery: i am shery ahn in new york. you are feeling the impact of the u.s.-china trade war. the isn manufacturing gauge plunges in december. kathleen hays is here, and will this finally put the fed on the path to a rate hike calls? -- pause? to been: it certainly has catching their attention. we have a big fed meeting at the end of the year. right now, what we are seeing from the manufacturing fund is pretty dramatic. the u.s. ism manufacturing gauge is similar to the pmi we see around the world, falling 2008.st since october of

new orders, production, both sharply.ge fell anything above 50 signals growth. the isn was at 54.3. it fell from 59 and another very important thing to remember is that this comes after we followed weak pmi readings in china. we have got weakness in south korea, malaysia, europe. i want to jump into the bloomberg library now. this is a pretty cool chart because it brings this story together. the blue,ve here is this line right here, the u.s. isn, showing a lot of strength. how did it withstand the trade war? we finally figured out it is notwithstanding the trade war. what we see below from the china pmi report, the white line is new export orders. see how that's been coming down. got both going down as

well, so you can see how china's economy, both of the economy's this trade war are finally iflly feeling the bite, so you look at the comments from u.s. manufacturers, they talk about higher prices and tariffs making the most competitive. now, all the more attention goes to the big jobs reports. the december report from the government. payrolls are supposed to rise 180 $4000 more than the $160,000 and change we saw the month before. $184,000 more than the $160,000 in change we saw the month before -- and change we saw the month before. haidi: we are waiting for jay powell to speak as well to see if he retained some of that optimism from the end of last year. but you know, rob kaplan is a pretty key voice up a dallas fed. he told bloomberg news that it is time for the fed to pause. is this too much uncertainty?

kathleen: yes, he did. it is important to realize rob kaplan is considered a centrist on the federal open market committee, so we paid a lot of attention to what he says. we would like to hear what he has to say. one of the insurgencies -- what are the uncertainties he's watching? how much our financial conditions doubling back -- are financial conditions doubling back? big one heanother named in his interview today on bloomberg tv. let's listen to what he said a positive is the thing to do for the fed right now. robert: my own view is we should not take any further action on interest rates until these issues are resolved, for better or for worse. i would be an advocate of taking new action -- no action. and the first couple of quarters of this year, if you asked me my base case, it would be take no action at all.

kathleen: no action at all in the first two quarters. he said if necessary, the fed could look at its balance sheet reduction plan, make changes if they have to. on autoll said it's pilot, working just fine. and of course, he is speaking on a very important panel on friday. yellen.anke and janet the two he succeeded. how they speak about what is political pressure from the white house, what is the impact of trade, and i think it is interesting also to note theirconomists dropped march rate hike call. markets now looking for no chance of a rate hike this year and in fact, fully pricing in a rate cut by april 2020. if the economy shows signs that the trade war weakness we are seeing in manufacturing is heading more broadly, i suspect we are going to see those rate cut calls from the fed funds futures market getting even stronger much earlier in 2019.

, thank you so: much for that. kathleen hays in new york -- haidi: kathleen, thank you so much for that. kathleen hays in new york. the first few minutes of trading for japanese markets when they reopened for the new year, we are seeing both the topix and nikkei 225 down by over 3%. min down by close to 3.5%, the and it's down by close to tw 3.5%. tracy, we are getting these lines through from south korea. the finance minister holding a meeting. it could continue for a while that market stabilization measures will be taken if needed. do we expect the fed to play into that, to take measures or not take measures as the case may be? >> i think what is likely from the fed is they will send a message that they are still data

dependent and will look at financial markets, so they are likely to send a signal that they want to anything at least in the near term. but i think what we are not going to get from the fed is the power put. i think that idea is long gone. that was a post -- an immediate policy and was what the nikkei doing forey were themselves. the normalization of monetary policy come i do not think the fed will be doing that but they will probably pause -- policy, but i do think the fed will be doing that and probably cause. haidi: that expectation have kind of been blown out. but in terms of how bad really things are, we ended last year with a number of global markets falling into their territory. talking about it being good for opportunistic stock.

seems thing to be a lot more ugly. tracey: i think the reason for that is we are starting to see the impact of fed tightening. we are seeing fed tightening tos-through into bonds increase corporate borrowing. we are starting to see it pass-through into earnings. theme for the key upcoming earnings reporting season in the u.s.. more and more companies will come out and report downward revisions to their earnings outlook as they begin to feel the effect of the tightening in monetary policy. this is more than a correction in our mind. we do think that this is going to turn into a bear market and, ultimately, it will lead to a recession in the u.s.. thaty because we know every bear market tends to be killed off by the central bank by tightening interest rates, and we know that since 1950, there is than tightening cycles in the u.s., 10 of those 13

tightening cycles have led to a recession. the three that did not lead to a soft landing. they occurred early in the economic cycle. so now, there is a very good youre that the fed is at joy and perhaps even beyond theal and already in monetary policy. we are starting to see that with corporate earnings. haidi: you mentioned that corporate earnings -- shery: you mentioned that corporate earnings could be cut again. we saw the exact same comments from kevin hassett. how much does china factor in here? tracey: the chinese economy has been slow. accelerate ino the second half of the year. china has been progressively slowing down for some time. it is now only just starting to impact earnings. i often described the

impact of higher interest rates. it is effective. it starts with the short-term interest rates and then it begins to pass-through into corporate lending rates and bond yields. so we saw the initial effects of tightening monetary policy in prices, so pes came down quite to medically. it takes a little bit longer for that to be fully reflected in the earnings number. earnings are beginning to be revised down. it began, remember, with ge. and then we saw gm and ford cutting starting numbers. we saw xerox, fedex, delta as well overnight. and now, apple. progressively, earnings will be revised lower. to hit where it begins the real economy.

as earnings slowdown, margins, under pressure. corporate have to cut costs. the biggest cost to cut is labor, so one of the key indicators that we are watching is the initial jobless claims, just to see that begin to trend up. shery: we just had the dollar yen crash. the gtv chart on the bloomberg showing not only the jump on the japanese yen overnight, but also just over the past year, we saw the japanese yen being the only major currency to win against the u.s. dollar if you are expecting a recession. was this just more than our events playing into thin liquidity? -- was a fundamental reason real people wanted to go into long and? .racey: this is fundamental it began from that perspective. fixed income,is

so there is a reason why people tend to be glass half-empty. fixed income markets tend to sniff out trouble well before other asset classes. the trouble really began in the corporate bond market way back in december 2017, actually, when the bond yields bottomed out at 4.1%. this is fundamentally driven. there are other technical factors that are perhaps accentuating the move, but this is all being driven by a has beenal market that going on for 9.5 years now so there has been a long period of perhaps some complacency which has said in -- set in. nonfinancial corporate debt is at a record level in the u.s. there is a large proportion of low-quality debt. is half the -- bbb index and three times the size

it was in 2008. so the chickens are coming home to roost here. i think investors need to be cautious. but this is not going to be a long-term thing. this is a correction. investors need to be cautious, going to cash and wait for better buying opportunities, which will come. haidi: cash king again. course, you can get a roundup of the stories you need to know to get your day going in today's edition of daybreak. bloomberg subscribers go to dayb on their terminals and it's also available on mobile in the bloomberg anywhere app. you can customize your settings so you only get the news on industries and assets you care about. this is bloomberg. ♪ .

>> adding to the 10% decline back in december. negative after opening higher, and it was falling 1%. plenty more to come. this is bloomberg. e to come. this is bloomberg.

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hong kong.30 a.m. in it's been a hard start to trading in japan as those new year.ened for the eeing a decline of 3%, playing catch-up given the losses we've seen. >> you're watching "day break asia."

ed? >> apple has suffered its worst 2013.ince january the stock tumbling 10%. it cust its revenue forecast on sales in china. some lists say the tech giant has priced itself out of the market but a top house economic adviser is warning that more u.s. companies ill be forced to downgrade earnings outlooks until there is a trade war deal. of u.s. manufacturing has plunged for the most since fueling recession concern that the trade war with china is having a bigger impact than expected. index dropped to a two-year low, missing all estimates in bloomberg's survey. new orders slumped the most in almost five years. 11 out of 18 industries report growth. the fewest in two years. weak prices the majority of oil executives is spendingnning to boost and increase production. 45% of those surveyed said their 2019 is to l for

boost output and more than half said they plan to hike spending. dallas fed president robert kaplan says he expects production to grow this year by barrels a day or more. >> there are so many uncompleted production l see this year net increase by a million barrels a day plus. the issue will be if this lower price goes on for an period of time you'll have some affect on cap-x and 2020. surveys show and my contacts suggest even at this oil price most above break even for areas of the permian basin. ambassador to italy has disappeared raising the possibility of a defection. spying agency says the diplomat and his wife went into hiding in november just posting was scheduled to end. a high-profile de function by elite would korea's

be an embarrassment as he diplomacy with seoul and washington. ictoc on twitter in more than 120 countries. this is bloomberg. heidi? that.nk you for let's check in on the markets. e're seeing a pretty poor start. the nikkei down by 2.5% or thereabouts. since christmas day when it plunged 5% adding to the 10% rout in december. had, of course, that was when japanese markets fell into a bear market. e're also seeing similar declines when it comes to the topics as well. we're just hearing from the ministry saying currency markets have been liquidity, hin in response to the yen,

in the witching hour when the apanese equity markets were closed for trade. onn algorithm ed trading. sydney extended losses. tunisia commenting on their interdivision, saying they by eight onvened brokers in the nondeliverable forwards market to support the repair. back to the japanese markets and all the downside action plunging on its opening time in 2019 seeing declines of 3.4% at the minute. the nikkei 225. let's take a look at the damage of the year rest might hold. joining us in tokyo. expecting this selling demand given the apple story, winds.ply story head what are the biggest moves we're moment?t the

>> this is not the kind of market traders were hoping to come back for. seeing selling across all ndustries, almost all the factors down. electronics makers down a gauge. bviously, there is a lot to digest for people coming back. and obviously apple suppliers area we were watching closely and last i saw japan was 8%.n more than sharp down more than 3%. nykea down 30%. pmi from k numbers in china, u.s. weak data from the .s. as well during the holidays, so obviously those are all weighing down and hitting haron the export dominated nikkei 225. especially start the nikkei sider

just saw its first slump. where do the markets go from especially when you have a strong japanese yen? >> right. well.s the key as one data point to look at to investors are taking present look is the options for nikkei 225, the cost downside against the for the index has climbed to its .ighest since 2016, which that might have been just a one event. but there are a lot of external winds that could drive people to safe haven trades hich doesn't bode well for the japanese stock market. obviously the stocks and yen have obviously been linked quite over the past week the core relation between the two has climbed to the highest year so the more we see all

the uncertainties from the u.s.-china trade spot, and the fed, the global slowdown, people towards the run yen, which will drive the obviously gher and way on the nikkei. >> they are saying the yen moving little by little but they are still looking to see if the moves are speculative. they are not considering a meeting with the boj or government. headlines est dropping on the bloomberg. thank you for , that. let's turn to the u.s. the we have a scene, democrats are not wasting any time on their control of the house of representatives hours pelosi took the speaker's gavel. the house is looking toward 13-day government shutdown. diligent and ent, persistent in trying to open up government.

i said today on the floor, we fromtake ideas, good ideas wherever they come. including the idea of the bills passed by the republicans in the united states senate. we're joined est now by bloomberg's senior schneider.al editor we saw president trump this morning during a white house doubling down on his demand for a border wall with mexico. pelosi really r not budging. right.t's the two sides are doubling down on their positions. border t trump bringing control agents to the white house to make his case yet again that $5 billion he wants for our border wall with mexico, and pelosi taking over as she speaker, showing that has the resolve to also make her case. spending pass some

bills but they won't contain the wall money so the two sides are apart here and we have some republicans in the senate including the senate majority eader mitchell mcconnell saying, this shutdown could go on for weeks. there any resolution to this? what are the plans from the emocrats, they have already taken control of the house today to actually get a resolution here? separating the issues between the board wall nd actually opening the government? what's on the table? >> yeah. --the house is going to pass nancy pelosi is going to put forward two pieces of which will probably pass the house. ne would fund all the agencies except homeland security through the rest of the fiscal year, trying to reopen the government. would fund the homeland security department, hich can, of course, is where this border dispute lies temporarily, and include $1.3 border security but

no wall money so that's what the democrats are going to try to do. the government and continue to negotiate. that het trump has said will not accept that. >> what are the president's that is remain at this point? >> well, he doesn't have a lot. give in or be tough. on the one hand, if he was to and say -- he could say, okay, there is some border money here. negotiate. i'll continue to press for my risks t then he alienating his base and going back on a campaign promise he made early in his campaign wanted to bill that wall with mexico so there is a risk there. risk with a also a continued stand-off with the democrats and keeping the government, not allowing the reopen.ent to the longer a partial government shutdown goes on, the longer thousands of workers are without paychecks and government contractors don't get paid either.

that could start to have some economic effects. also, it's not a great symbol u.s.he certainly not for tourism to have some iconic institutions smithsonian museums shut down. there is a big closed sign in ront of them now so that's not helpful either. so there are risks to the president on both sides and with he democrats taking over the house he has less leverage than a few weeks ago. >> international editor with the latest on the partial government shutdown as it goes into now a third week in terms of options, hat options does the president have. what options does beijing have terms of negotiating a trade truce before that march deadline on tariffs iod expires? lots more to come on trade and 2019 next on or "daybreak asia." this is bloomberg. asia." this is bloomberg. new york.

haidi: apple is finger pointing as a na weakness comes delicate phase during the u.s.-china trade wars. apple's announcement could shift delicate balance. bloomberg news reporter joins us from hong kong. it's interesting. at it from many different perspectives, in terms of whether the weakness is negative impact on u.s. companies or whether it's kind of giving a little bit more trump camp in terms of how much it's weakening economy.ese >> no, you're entirely right. here is a little bit of everything, a ocala bit from column a and column b for everybody. apple's ok at it from side you spoke to a lot of they are esterday an ng a point, there is

settlement of saturation. are waiting for the 5-g technology, to roll out. there is no hand, doubt that we all know china's economy and retail sales are slowing. the slowest growth in november since 2003. otwithstanding the broader industry issues, around apple, there is highlighted a degree of weakness in china's economy. to question is just how weak the onsumer is and just how much that pressure is filtering up to the top, and whether or not it force them to push harder for a trade deal with the u.s. by all accounts it's focused minds a little bit on what's happening to china's the blow back towards american companies, too. haidi: so it's not only the economy slowing down we're seeing a factor in the .s. falling the most since the recession, so given these economic growth concerns, could least be optimistic that

this may push both sides to want deal by march 4? unknowns, e a lot of obviously. both leaders have said they want a deal and mr. trump has said several times and he recently spoke about making progress. he thinks both sides can meet halfway. when you look at what's markets, on global u.s. markets and global markets, when you look at the pressure on and chinesees, u.s. economy you would think there is probably an appetite for some kind of a cease-fire to continue the very least but i think at the same time there is also a hesitation among analysts that of the structural concerns can really be resolved by march 1. a deal.ld cut china could buy more goods. china has been fairly explicit that. whether or not both side can reach a middle ground. china's industrial strategy and how china intends to pursue ambitions is a whole other

story. >> stick around. louie, it's great to have you with us. talking about the weakening chinese and u.s. economies, manufacturing, all weakening, in the past few months. growth concerns, the fact that we have protectionist trends. does that mean that this year in 2019 we could actually see global trade shrinking? you know, i think it's undoubtedly true that at the moment we're witnessing a period momentum. slowing momentum in fairs economies and therefore also in as a whole. however, at least in our view, ooking at the fundamental prospects for both the u.s. and china and even grourp, we think there this will be year and so we also think that and after hiccups the transition phase to a lower be th, there will still

growth in 2019. >> i want to ask you a question apple-china debate. there is no doubt there are ndustry specific issues here but we also know the consumer is slowing as well. where do you fall in this debate what's your sense on just how pronounced this is? underestimate t the slowdown that's taking place in china to. be honest it's not a complete surprise. had been expecting this quite some time. in terms of how you should it's a our projections little bit late in that sense. so we have a slowdown in china. is coming from various sides, right? we have the trade war impact. housing ave a slowing market in china and that matters to the consumer and we have that's pretty weak because of these things. the key thing over here is, all will be the bottom of of this? it will take some time and i think before the bottom will be to be we're going

anxious. >> is iphone a good indicator for the demand in china? >> i wouldn't do i. as you said there are so many industry specific issues, on top of that, apple at the moment is a little bit of a victim of the war, as you said. apple rs' attitudes to are switching unfortunately. yeah. is -- in all seriousness, how pestistic are being? clearly the trade war doesn't help. there are chickens coming home it comes to the structural nature of its economy. theirsee them stepping up game this year? >> you know, it's really also, in ng to see how the central economic work december, how fine line the authority is, that the authorities are trying to walk. they are aware that growth is slowing. they are aware they need to do

something about it. they also don't want to be overdoing it in terms of stimulus. so they are still walking that line. we see easing coming in a very in this context. >> we've already seen triple-a cuts. we've seen tax cuts. import taxes also being slashed, so when will we see the impact of these policymaker efforts play into the chinese economy? >> so there is a little bit of a tug-of-war at the moment between organic growth on the one hand, and the policy measures that are slowly in.rting to be kicked in our view it will take at least until q-2 for that to have been won by the policy stimulus. so we'll need to wait until q-2 in our view for growth to see a floor. >> i wonder if you have any might come ut what out of the talks in beijing next week? are we likely to see any just an in.gress or

al step in the march towards the first of march? >> i think you also said it. good chemistry wean the two people at the top. underneath that, there is an to be done. work now that chemistry at the top, i so k, should not make it difficult for there to be some pleasant feedback about these and even for there to be some kind of suspension, again, april.ch or at the same time, the gap in position is so wide. aina has been actually taking few measures. it doesn't look like the u.s. keen on know, is giving china any kudos for that. i think the underlying tensions going to be around for much longer. ven if the news next week is going to be quite positive. >> if the midterm scenario then extension of this uneasy truce or grace period, kicking down the road given that

this is kind of a bigger strategic battle between china nd the u.s. that we've been talking about, where does that leave investor sentiment? animal es that leave spirits and the willingness to do deals and invest in this part of the world? well, that's a good question. again, it's interesting to see policymakers' response. they are very interested to make that their domestic economy continues to grow. reasonably well. power of the chinese economy will continue to be a plus for many firms. and also in the u.s. at the same time, you do have that uncertainty about the relations. what is going to happen to tariffs? what will happen to other measures. will, on the one hand, damage a little bit the overall sentiment in markets but it will probably a reasingly start to lead to a tle bit of something like

separation of different spheres n the global economy, especially in the technology sphere. haidi: if nothing hit be in 2019.ng happy new year. economics and also our chief asia economics correspondent in hong kong as well. on't forget, if you've missed anything on bloomberg tv you can catch it on our interactive tv go on bloomberg. you can watch us live. interviews and do a deep dive into securities on the bloomberg functions and conversation.e if you have any burning uestions for our guests use instant messages. this is for bloomberg subscribers on. check it out at tv go. this is bloomberg. at tv go. this is bloomberg.

haidi: this is "daybreak asia." shery: let's get you a quick headlines, e latest bristol squib is starting 2019 announcing a value deal to buy a drugmaker. bristol-myers ne squibb share and $50 cash for each of their own shares. pharmaceutical deal on record. for s rose as much as 32% their biggest one day gain since 1988.

bms sank around 14%. the most ines plunged in more than six years pulling its rivals lower after disappointing ticket pricing the carrier to cut its revenue forecast for the second time in two months. to concerns that the r pricing and possibility of slowing demand from trade wars could weigh in. japanese automakers beat all sales with nissan posting a 7.6% rise. honda sales rising nearly 4% and than 1%.lling less a drop in sales for all three ompanies, among american automakers, gm saw a 2.7% in fourth quarter sales while forward posting a bigger december.ted drop in haidi: before we hand it over to loomberg markets asia, it's been a bracing thankless return to work for japanese traders. very much playing

catch-up or catchdown, if you will, when it comes to the we're seeing in asia. and kospi kkei 225 seeing declines, the biggest december 25, christmas day. that catapulted japanese stocks a bear market. in particular, we're watching japanese e scene in apple supplies. really, again, playing catch-up of that egative news revised guidance lower. we're seeing the likes of japan losses on the ng main benchmark as well as sony, tdk down by 8%. shery: let's take a look at other asian futures. it could be a brutal day for markets especially apple suppliers in taiwan. semi talking about ductors, futures down .6 of 1%. singapore also down a percent sessions of losses. that's it from "daybreak asia." china open is next. pen is next.

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>> 9:00 a.m. in china. chinese futures already indicating a drop as well. pandora's ening a box. raising investor anxiety over any company with ties to the biggest economy. >> the world's largest economy seems to be in trouble, too. u.s. manufacturing

reading raises talk of a fed and even a rate cut. >> here we go. apple stock down. all tied up in this lethal bow come back for ey the new year. we're seeing a tumble in japanese equity already. 3.7% down. if you go to apple supplies, there are several of those which as well and t helping to drag down numbers. at nikkei.ok >> let's have a look at those coming on-board. this is singapore, ty pay. .6 of 1%. getting an inflation raiding.

5.1%. leaving real interest rates at terrain.uch in negative still, when it comes to what's have on in manila, we'll an analysis on that. let's look at japanese markets. weakness as of they start off and kick off 2019. first trading day of the new year, for what's happening in tokyo. markets, 2.6% to the downside. nikkei feeling it 3.7% move. pretty much holding on to did see in that we the sessions that took place about 24 hours ago. ago.ct, about 29 hours 107 yen. 59 on the dollar. just a slide move to the upside. at the moment, for the u.s. occurrencely. yield still year below zero. what are the prospects? hang seng futures, .2 of 1%. don't read too much into that. could still post a negative

start. .4% lower, and a move to the downside anticipated here from the a-50 futures. at 6.87, so trading that's what we've got. get ready foret's a tumble. >> i've got to do that voice. ready, too voice the yen is certainly one to watch. the biggest surge for the new 2008 for the currency. it could be more trouble ahead boj.the we mentioned the turmoil in markets. apple's downsales citing a slowdown in china and there is a warning of contagion. trump's top dent officials is saying the trade war with china will force more their earnings forecast. here are the details for us from new york. contagion definitely is the word here along with all the asualties that we're seeing across the board not just in technology. a long as you have a link or

tie to china and a business, there.ss structure but the chair of the white house council of economic advisors, kevin has set, earlier today said, we've only just begun. take a listen. at multinationals, yes, the chinese economy is slowing and one of the reasons why markets are responding the are hey are is that people downgrading their earnings forecast for folks who have a lot of business in china. the chinese ke, economy is on a path that we decades.seen in >> kevin hassett. he also said if the negotiations slated for next week come out better than expected, a lot of us think are expecting, apple's revenues, apple's sales could see a return some kind of normalcy. in addition, that could all of the bring up other sectors and all the other related this ocks

downward trend but hop to the bloomberg terminal with me and i the eqs how you gte library, the screening function in regards to ome of the biggest companies that are linked to chinese revenue. so, for example, why don't i walk you through this if we there.get it up for example, there is broadcom, pple, nikkei, all of these companies have a level of about $10 billion in terms of market or higher, and they are getting about 10% in terms of there. from so if we could show that to you, you would have seen a lot of red of pain ard but a lot sector.across the tech >> not just tech, investment the ty pretty much across board. it's essentially tied to china. >> yeah. happens, really what

right if when you tie your own gdp unes to the slowing shift, that is, china here, coupled, of course with what's appening with the u.s.-china trade war but let me walk you through, for example, luxury and retail sector. board first at because what we're seeing here tiffany, f lvmh and those luxury retailers, through the lens of buying an iphone, a ember, an iphone is about thousand bucks, right? it's not just technology. luxury.so so lvmh and tiffany, they get on 28% of their 26% to revenues from asia and japan. they don't split that out for but we can get a little bit of a barometer. seebucks down 4% as you can on the board. also, banking their fortunes on growth, because they are expanding their one store every ew hours as we've been reporting. mobility stocks also. boeing selling a lot of planes to china.

if there is a slowdown, what does that mean for those sales? citing the fically u.s.-china trade war. just a few weeks ago in late that er 2018 they said they were slashing their profit forecasts because of the u.s.-china trade war in particular. we see that falling. in addition, if we can scroll to screen, hotel stocks, got a great article today were g about how these hit. marriott and hilton, down more than 5%. ou compare that to the lowest percentage there, down 3.7% for the bloomberg, america's lodging index, you can see that the marriott and hilton, clearly the outliars here. lot of growthng a terms of chinain and rooms and development. their share of the future is some 27%. rooms development in china are 100,000 rooms. so you can see that, if down in does turn

china, these hotel stocks as well as the luxury stocks, along stocks and mobility with tech and everything else, that's just touching china, a downward could see trend. >> amazingly, we've been seeing nternational companies with significant china exposure. a look at this, have a look at this chart. t's in sharp contrast with the deceleration of china's pmi manufacturing data, making a rebound. have a look at that chart as more stimulus gets rolled out. there, with the blue line, indicating those ompanies have actually been moving to the downside fairly rapidly as well. so what does this all mean? let's go to kelvin ubc global wealth management over in singapore. good to see you. everything seems to be connected sold out fors been

the moment. how did you view it? >> i don't think that's really urprising because in a couple of days, earlier, we've seen china coming in a little bit on weaker side, and the fourth quarter of 2018 is the first to see you're likely weakness in the numbers coming in from the u.s. companies. quarter that will be reflecting the sales numbers the time when the trade war tariffs have been implemented. a lot of front loading in the third quarter last year so those numbers weren't fourth but in the quarter especially for november nd december, we see weak numbers. therefore, that partially explains why the earnings growth numbers for u.s. companies could come in below expectations. >> what led was the manufacturing data. you pair that with the weak got out of apple. it's only confirmed that this growth is hronized

fading now. >> absolutely. top of that, the fact that the chinese economy is also now tarting to see weaker than expected manufacturing numbers is actually suddenly not going to be good news for the market two of ecause you have the world's biggest economies slowing down at the same time bad news cally means across the board. in asia and japan these are two biggest export markets and it's going to have very hard numbers on the asian companies couple of quarters. -- short asia.pore rates have been rising quite sh hong kong, explain that. >> we think hong kong is the most vulnerable market in sharply. the ongoing balance sheet by the federal reserve, it's going to pressure to hong kong dollar

rates moving up. on top of that, the hong kong markets seems to have slowed down and that will hurt consumption where the domestic market is concerned. for that reason we don't like as an equities market. singapore is very undervalued, actually pricing recessionary concerns. the market is higher than asia andor the rest of japan as well. to a, the impact is likely start kicking in from the second quarter. don't forget the chinese government have been actively second rates since the quarter of last year and that's sooner have an impact or later. we think it will be quite positive for the market because no longer a concern. stabilized.as therefore, it's likely to be for inflation in

indonesia as well. >> at one point, you're talking with stocks ions, in singapore. hong kong we're looking at 9.5. >> yeah. the earnings k at growth numbers, economic growth, coming out the data from hong kong there is still some downside to go. we could potentially be a of this realignment of the global supply chain adds well. from what we've seen that's started and some of the countries have actually benefitted in. asia, actually vietnam, malaysia and to a certain extent singapore adds too overly e not bearish on the economy. it might actually slow down this that it's think still able to actually reach anywhere from 2.8 to 3% growth therefore from that perspective we're not overly bearish on singapore. we expect them to do quite well against the u.s. dollar. where as the hong kong dollar, likely to see further

downside. us.kelvin, stay with we'll talk with him a bit more, from ubs. the fed.talking about let's get you caught up with kathleen hays from new york. thank you so much. despite weak prices, the majority of oil executives planning to still boost spending and increase production. 45% of those surveyed said their primary goal for 2019 is to boost output and more than half to hike they plan spending. president robert kaplan says he expects production to grow this million barrels a day or more. day or more. . >> i think you'll see in the oil patch, because there are so many uncompleted wells, cease of a et million barrels per day. if the lower prices go on for an period of time, you'll have some muting that may affect survey shows and my

we're ion with contexts, above break evens for most areas in the permian basin. allegations against former nissan chairman ghosn. nissan fund toal pay $48 million run by two of in the middle es east. it's unclear what the payments were for. he's been accused of and accused his pay of breach of trust. he's been in police custody since the middle of november. korea's acting ambassador to italy has disappeared raising the possibility of a rare defection. south korea's spy agency says diplomat gil and his wife went hiding in november just before his posting was scheduled to end. defection by one of north korea's elite would be kim barrassment for leader ung-un as he continues diplomacy with seoul and washington.

owered by more than 2,700 journalists in more than 120 countries. i'm kathleen hays. this is bloomberg. kathleen hays. this is bloomberg. >> still ahead he quit his job rich investing in hong kong. picker.ar stock >> chinese weakness could cause more u.s. stocks to slichltd to the more evidence contrary. we'll ask ubs's kelvin next. this is bloomberg. vin next. this is bloomberg.

>> we were talking about the fears of the slowdown in china. is ver, the u.s. economy also showing worrying signs, u.s. manufacturing plunging by 2008 st since the recession. this trade war with china is impact than er anticipated. the index dropping to a two-year low missing all estimates in the bloomberg survey. new orders slumping the most in almost five years.

deepest decline in production since 2012. >> all of this is putting more what the fed will do next. they are saying rates should be amid the uncertainties of global growth. take a listen. should not ew is we take any further action on interest rates until these resolved for better or for worse so i would be an action, of taking no and, you know, for example in the first couple of quarters of you ask me my base case, my base case would be take action at all. we're all kind of -- we want whating up a chart to show the markets are pricing in at, we could see a rate cut in 2020 ois data that we saw, rates we're seeing there, actually the federal funds target rate. some are pricing in potentially

that fed cut. do you think market knows something that we don't or are we still too aggression sieve in terms of pricing out these rate hikes? >> well, i think if you look at the unemployment numbers, you 3.7% in november, that's still historically one of the record.'ve seen on based on the unemployment numbers. unless the payrolls take a huge couple of next see the u're likely to fed pausing but based on the jobs growth and unemployment reserve till think the has room for actually two more hikes but it's likely to be in towards the end of this year. they are not likely to do anything in the first quarter fact you have -- you have a couple of big events. firstly, the u.s.-china where the trade talks are going on, to come to an end in march and then you have brexit.lly which could perhaps be a huge

as far as volatility because there is no precedence for that. therefore, the federal reserve is very, very unlikely something in the first quarter. if the numbers continue to be strong, then in june you're see some action from the federal reserve and we think likely to happen. are levels we e haven't seen since june of last 15 to be exact here. fear factor, definitely responsible. kell have a, you're probably not surprised by this move. long time ly been a coming. >> yes. absolutely. fact k it came after the that, commentary from the federal reserve was quite dove vicious in november. it's done an about turn. and you saw gold rising quite there.from the reason is clear. if interest rates continue to be

up and the original intention was four hikes, then there will be an opportunity, gold don't give a yield but now that expectations drastically quite that's one of the reasons why you're seeing gold prices surge again.p but oil prices are coming off and therefore as a result of that you will see the dollar under pressure in 2020. not in 2019. not in the first quarter because of the events happening but for the rest of the year there are expectations that the dollar weakn to about $120 in that sense. >> so, yeah, what does that mean when it comes to the yen? i'm watching this flash crash, what they were calling it yesterday. some were quick to point to the apple results. hin trading but do you think there is a bigger question now hat boj will have a much tougher time trying to tame the currency down? yeah. in know, the ending of qe

december, federal reserve neutralizing the balance sheet will put pressure on the apanese government or the central bank to start doing something on their quantitative easing as well. there could perhaps be a potential for them to increase on a 10 year to perhaps .3% and that in turn is put some pressure on don't anese yen but forget, the japanese bonds are the second most liquid bonds in world. there is some demand for that if volatility kicks up and we do likely at volatility is to be quite high. >> kelvin good, stuff have a one.t happy new year. ubc global wealth management. looking at forensic analysis, this is bloomberg. is bloomberg.

>> according to the latest business flash headlines all ese automakers beat expectations last month with nissan posting a 7.6% rise. honda sales rising nearly 4% and 1%.ota falling less than analysts had forecasted a drop in sales for all three companies. automakers, gm saw a 32% decline while ford than expected drop in december. bristol myers squib is starting with a bang announcing value 4 billion equity deal. stockholders will get one bristol-myers squibb share and $50 cash for each of their own cares. it's the biggest pharmaceutical record. celgene's shares rose as much as 32%. bristol-myers squibb sank around 14%. orderedcyberpolice have

baidu and sohu to suspend services their news for a week. authorities clicked off a campaign to eradicate so-called vulgar information on online media including messaging services and live streaming platforms. investigators haven't explained why they were bun anybodied or needed for them to resume operations. we have.s what on the way down. hang seng, looking at the currency, 6.85 for the offshore. moves, a look at those luxury goods companies connected with china feeling it. taifook on the way up. a pull back here. 1.8%.onite, down

let's have look at some others. downgrade from morgan stanley yesterday. 8.2%. losses at levels not seep since may 2017. petrochina, hold. mgmchina, what we have there is upgrade that. to sign up a deal with nokia. with nokia.

>> we're 90 minutes into the trading session in tokyo. really, not a good welcome back traders in tokyo here today. thanks to that surge in the yen. seeing the nikkei 225 down 3.74%. the brings us back to lowest levels we've seen back in day ber -- that christmas when we saw that 5% decline across the board there.

topix also down 2.6%. we've seen 10% losses for the in december alone and the japanese yield down five basis points. negative territory right now at the moment. a lot of questions about whether to have to y going intervene? japan appleat these suppliers. >> apple, of course, playing yesterday. looking to the federal reserve. yellen and ben bernanke on-board. open, not as bad as we've been seeing. by 3/4 of 1% in the hang seng market. lower.one that's what we have at the

moment. >> gold futures topping at 1,300. show the risk. slowdown tremors spurring this new year rally. this rally sticks and what's different this time. let's go back to the china market. our next guest says he's positive when it comes to chinese equities because of tiffee val ts wastes. let's bring in alex wolf. here in hong kong. alex, good to see you. >> good to see you as well. a look at the pmi data out of china, manufacturing, the u.s., are we looking at this slowdown in it looking more severe than the data suggests? >> i don't think it's more evere than the official data suggests. pmi is contracting. you see weakness across and trial production weakness in the manufacturing sector so i don't think they are or it's disguise it weaker than what data suggests. across see it weakening

the board. >> is this largely been priced most of the downside has not been as bad as last year. evaluations are almost cushioning the market itself, perhaps fore you can have a little bit more confidence, i guess, and that may be lending yourselves to your where you are in position. >> yeah. it's not what risks deputieses. you're getting paid to take those risks. it's no surprise that china is weakening. see credit growth slowing down pretty significantly for many quarters. well.no surprise as >> reflected in the earnings season when it comes about. yes. so we're below consensus in terms of our earnings forecast. think that valuations right now are fairly attractive. to take that risk. where evaluations are at, where arectations are, the yields still relatively attractive in china. it's one of our more favorite

markets. bad news used to be good news for markets. ow that you don't have that or hang singed put input. is it pretty limited? >> in china.as well as but that remains the biggest question with regards to china. n the past, you look at previous cycles, whether it's 009, 2012, 2015, when you saw growth slow to these levels you saw a strong stimulus-response from the government so that's probably the biggest question we're facing with regards to china. what kind of stimulus are we form will e and what the stimulus take? >> do we actually need some kind to turn around the dripment or this piecemeal by drip stimulus is that sufficient enough? >> i don't think so. it's estion is whether sufficient enough to stabilize growth. hat we've seen so far this piecemeal drip by drip tax cuts, think, regulatory

changes, for private sector companies, is not really enough. is what are the markets pricing in? generally you have a lot of a lot of foreign investors, pricing in a strong stimulus-response. theret think that's quite now. consensus has come down with respect to it, but right now it's weakening. strong 't seen a response yet the basic question in 2019 is do they respond like they have in see this r do we continued pace of tax cuts -- >> just chipping away, just a reforms, et cetera, but we've seen it in the past where they have done that and it they just say,nd kay, let's just chunk the kitchen sink that. could still be in the cards? >> it could be. market is what to look at. of the bviously one biggest fears for policymakers. we do see a little bit of labor

well. weakness as you've seen it in survey data and employment numbers. that's weakening but what they are doing right now is a smart policy. enoughsy to say it's not to bring about a response in equity markets but the fact is tax cuts are the right way to do it. de leveraging is still extremely important and right now they are not stimulating the way they in the past because they are aware of the risks. the question is at what point does it get so bad that they to? >> does that pressure them to strike a trade deal? you're saying this is just all that we the moment should actually ignore these headlines that come through. with the rest of the trade? it's not just noise but it's overshadowed by some of the weakness domestically. credit growth is the key thing. the economy has never -- the conomy has not been able to detach itself from being credit ependent so as you see credit slows down to the figure it's at now which is the lowest since the crisis by a lot, that's the story in china is that without credit growth picking back up it's hard to see

do anything but slow down and with a lag. usually two to three quarters so iven that credit growth hasn't bottomed out yet you probably expect growth to weaken into the first quarter and second quarter. >> are you fearful? >> no, i don't think that's the characterize how i feel. >> i'm just asking whether you not.or >> yeah. i think that there are certainly risks facing the chinese economy. risks facing the global economy. i'm relatively optimistic around the prospects of a resolution on trade. i think it's in both countries' best interest, and at least both that, you might see conflicts elsewhere, but ptimistic on that and i do think that there is a lot of fear priced into the markets at a moment and trying to keep steady hand and look through some of that. yes, they are still relatively positive. expanse air. a drastic eeing slowdown since 2015, at least not yet. >> you watch the property market

as well. everyone is watching whether these property curves will be used. some confusion, backtracking all of these and ease these curves and then they a day later.mind what do you think is actually going on? >> i think they are a bit torn how to handle the market property. been anti-market in terms of the curves they have put into place on tier one cities and the directed buying in tier three and tier four to push prices up it will be hard to those. that's probably a step they will likely take this year whether second quarter or at some point, by the first, by the they will first half probably ease some of those in tier one cities just given that there is some pent up the demand there has not been a stimulus in china that's not led. housing >> the global situation is -- as well -- situation -- >> slowdown taking place, europe is not doing great. u.s. market ing a

which is firing on all cylinders as it was. a few signs of weakness there. numbers out of the u.s. are certainly eye opening. in europe, you can see the hard data. the hard data has stayed weak. the survey has come down to a bit of a ut disappointment there. global trade, global pmis, weakening in the cycle. we went from synchronized growth in 2017 tory last year to now synchronized slowdown but it's yet to accelerate. you have to accelerate to extremely warring levels but we're definitely seeing a world.wn across the >> we're also looking for turning points. i have a chart that shows what dividend yields. they are at a premium to what we're seeing in the chinese bond market. compared to the yield on the chinese 10-year is that a potential inflection point where more rotation out of chinese bonds back into equities? yes, i think as well as we start to see more easing. which further r.r. cuts

we expect over the course of this year and i think, too, a policy.clarity in a lot of investors, both domestic and foreign, are waiting for clarity. that at the recent economic work group meeting but as the government weighs out some of its policies, especially with housing, especially around stimulus, a bit more policy clarity in addition to a bit monetary easing, yeah, i think we could see a rotation there. you for joining us today. from j. perform morgan private bank. look at what's happen in the philippines. at the ve a look currency after those inflation numbers, 5.1% was the inflation ago.er we got a short while pretty much unchanged. 52 there as well. at what we did have -- to someit stack up next of the surveys. >> actually, maybe i should a trend. that perhaps inflation is easing a bit here. we're still kind of well above

targets, our forecast for 2018 from the bank in filipino. we'll see how it plays out. >> whether it calls for a change monetary policy in the u.s. gets louder, here's the first kathleen hays. >> thank you so much. kathleen: dallas fed president should be on tes hold amid uncertainties about global growth. cited a weakness in industries and tighter financial conditions as key issues the fed account.ke into the fed raised rates four times in 2018 while dialing back hikes in s for economic growth this year. s in economic growth this year. >> my own view is we should not take any further action on interest rates until these are resolved for better r for worse so i would be an advocate of taking no action and, you know, for example, in the first couple of quarters of if you asked me my base case, my base case would be take no action at all.

pelosi has been elected u.s. house speaker as democrats took control of the chamber. the country's her most powerful democrat and the only women in the post she also from 2007 to 2011. partial u.s. shutdown grinds to a third week she says the democrats will not give in trump's g president border wall. >> does anybody have any doubt doing a wall?t that's it. gundlach outpurchased the in 2018.n his fund gained 1.8%. performance among the 10 largest actively managed u.s. bond funds. data shows the fund beat 97% of its peers in what as a rough year for fixed income investors, not too good for equity investors either. declined against the dollar after elections planned for february could be delayed again

the deputy prime minister says may clash for preparations for the royal coronation. alling for the election was expected to be published 24 week but the government has signaled not happen. >> global news 24 hours a day on air, tictoc, powered by twitter. than 120 countries. aim kathleen hays. bloomberg. >> thanks. coming up next, a stock picker who wishes he could lose his edge. we'll talk with david webb. this is bloomberg. >> let's have a look at what's

going on. arrow story right

across the board. making themselves felt here. luxury goods. at it's the apple effect really because everybody is now a china if there is slowdown they will be affected as well. as a result we can see these goods company following on what happened in europe. they are also under a bit of pressure. the feeling is, apple may be -- only one.he it could be something called the cockroach effect. 30you see one there could be others also feeling it, too. i'll be putting those questions go.our quest but here we yvonne: the china pmi services numbers and composite as well, composite 52.2, slight uptake. 53.9. 53, a pickup was as well.previous month that way at o be

the moment. holding up quite nicely, also in as well.ial data yvonne: talk about hong kong now. anking favorably when it comes to ease of doing business but despite corporate scandals and ild small cap stocks swings have rocket its stock market in recent years. times ed at less than 10 its company's reported earnings, one of the lowest levels globally. advising investors to stay clear of more than 75 of the city's companies aded several of which subsequently became targets of the largest hong kong's securities regulator. webb, founder of site, two b's, .ebbsite.com >> an easy choice to make. >> i suppose could you argue, you would probably be better off if you stayed clear of the whole market, but why those companies particular? >> there were two networks that

i outlined. one in 2017 and one in 2018. the enigma was a matrix of cross emerged through scrutiny of regulator filings and we had 50 listed companies which were e of stock market bubbles on their own. injected into those other companies. inflated prices, and i basically for an investigation of that. and warned investors to stay clear. suspended and the independent commissioner against orruption jointly raided several of the premises in december, 2017. vonne: you used to play with the buying boys and now you're playing in the minors and doing quite well. can you explain just how exactly been able to manage a 20% year gain and return? that is the part of market. an outperformance element which is probably more important. down 14% last year. >> not every year, of course. on average. >> okay. of investing.

bad had good news and years. >> last year it was down about 9%. small cap index was down about 18%, and all my stocks, small caps. prefer to be a large minority in small companies because then at least you have some rights to privatizations, for example, if you have 10% of the loat, and also to vote on connected transactions, where there is a conflict of interest with a major shareholder. so, my strategy is basically to through the 90% of the market that makes up 10% of the market value at the bottom end market. ignore the top 400 stocks and ook at the other 1,800 and try to find 30 or 40 which are worth holding for the long term. a s like walking around second hand car lot where you have no warranties, but if expert mechanic, you which have ones

been well maintained. not only that, in hong kong you have to get in the back seat the controlling shareholder is still driving the car so you want a safe driver as well. of the an avoid most crooks most of the time, then because of the overall lemon iscount you can get some very good valuations, and outperform the market. but if you randomly bought small you would underperform large caps because the culprit governance is just worse at the market.f the >> how do you deal with the thin liquidity. you're saying potentially these caps are a better place to invest because you get a better return but why aren't we seeing managers in the space? >> because by twins you can't put that much money it into. said, 90% of the market roughly makes up 10% of its if they give, even a fair waiting to that 10%, it a small y make difference to the large managers' portfolios, and there a lot of hard work. so i think they prefer to just gnore it but there is probably more attention paid to mid and

small cap companies now than there was when i started hong kong 24 in years ago. so, that makes it a bit more competitive. yep. has the regulatory environment improved in hong so i mean what are we talking about in terms of malfeasance?rate >> it's been going backwards in the last few years. we did have a period of improvement, for example, after campaign i ran winded up with one share, one vote in shareholder meetings rather than hands, so you didn't just have a roomful of employees ho got the morning off to come and support the chairman. so there have been some but last year, stock exchange went up against a lot of opposition from second s, introducing class shares into the market. as i now call it, and obviously, if you weak shareholder's voting rights it's much harder for them to engage with the company. so corporate governor nance

going backwards in that respect, a continuing -- that we have independent investors, when they are by majority shareholders and obviously they can't be any more independent han the controller wants them to be. that issue on its own, if that was addressed and we said the ndependent directors must be endorsed by independent shareholders then we would start o have some real accountability, but those people would have to report back to the independent shareholders and and would have the rights mandates to ask difficult questions inside the board room. that hong ou think kong essentially had to go through -- just to stay with the rest of the world? >> i don't believe in the race to the bottom. the nk we should do opposite in ration to the top. if you strengthen the framework f corporate governance and investor rights, then you will get a higher p.e. for your stock, for the companies that up to those o sign standards and that attracts some companies that are still because to go public

they can get a reasonable price for their stock. companies acts good and lowers the cost of capital for the entire economy which is for the ou know, issue country. unfortunately,e though, hong opposite, ded in the the easy direction. regulatory,lk about holes in legislation, are you suggesting that this is endemic and ch is it goes right to the top, or are corporates perhaps better managed by better corporate governance? of ome of them are, some them aren't. i wrote late last year about china.ks surrounding asset management, which has added 300 billion asset balance sheet. the market -- it's very highly geared so there are some very large companies with chairman of d the that company has now been facing charges in the mainland and then we've bubbles, like -- which

is still suspended. asre were large cap problems well. but probably there is a high proportion of fraud sterling in the lower end of the market. quickly, would you ever touch china onshore shares? i don't own any a shares. they run for party more than profit and until china addresses the really big issue, which is form ofyou sustain that governance in the long run, keep generating prosperity if they start selling off those s.o.e.'s, we aren't going to get them. pleasure. always a from for coming in, website. much more on the way. this is bloomberg. on the way. this is bloomberg.

>> let's do a quick check on the latest headlines. to calls ed his voice for consolidation in european saying his lenders 4 need to get big tore compete u.s. counterparts. deutsche bank is among those calling for consolidation. the market in europe remains fragmented, long national lines mergers moreborder difficult. zuckerberg stopped selling his facebook stock, as their price tumbled 20%. had pledged to unload 35 to 75 million facebook shares over all part of a pledge to give away almost all of his fortune. since that announcement in 2017 he's sold over 30 million shares worth roughly $5.6 billion. has dropped a plan to end cargo flights to cuba. approval for the flights in 2016 but the trump administration has imposed new u.s. firms doing

business there. fedex says it was having problems finding local partners airport ground services. the ming up, talking about state of the markets again. alex wong will be along. yep. and talking to the group wey hou, his outlook for 2019. this is bloomberg. is bloomberg.

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♪ rishaad: this is "bloomberg markets: asia." drags stocks lower. ak eco-data, and apples warning adding to anxiety. rishaad: concern the trade war is starting to hit hard. any doubtybody have we are not doing a wall? ♪

rishaad: the apple of fact, also this shutdown playing out. more on the risk radar, on the alongsideerome powell janet yellen and ben bernanke, and the jobs report. yvonne: global growth concerns weighing on markets. we are seeing any easing off in hong kong. a welcome back to japan not so welcome. 3%, 630 down, the yen surge, the flash crash driving this. we see that strength into the currency this morning. surge for aiggest decade for the currency. dollar sh