>> hello and welcome to "daybreak asia." i am haidi stroud-watts in city. -- sydney. sophie: i am sophie kamaruddin. shery: i am shery ahn. our top stories this hour. slump in u.s. listed chinese shares accelerates. the golden dragon index posting its biggest three-day fall on record. a big day for big u.s. tech.

apple, alphabet, and microsoft beat estimates but shares are mixed after hours. starbucks beats the street. investors do not like a less optimistic china outlook. haidi: chinese shares off nearly 20% in the sof just three trading days. investors are shunning the asset in the broad-based crackdown by regulators in beijing. let's bring in our reporter. when you take a look at the bottoming out for this selloff, is it hard to tell because we just do not know the extent of the regulatory action? >> absolutely, you nailed it. what is interesting is that you are starting to the spread into a story, a global story, and what is high to china and the chinese domestic market is bringing back the entrepreneurship, bringing it back mystically.

not just what the effects are for u.s. tech also what the implications could be for global growth given the fact that this kind of entrepreneurship from china is helping it lead the global recovery. shery: especially given how big the wipeout was. the combined market cap of mainland and hong kong market wipeout in the last month has been $1 trillion so where do we go from here given that we have no certainty over the regulatory outlook? >> there's two ways to go from here and the first is that there will likely continue to be pain in the chinese adr index which happens to be the short-term outlook. whether it seeps into the global markets and whether that is the story from today and yesterday really remains to be seen. if you look at the relationship between the u.s. tech actor and the chinese tech picture, we have seen this crucial

divergence but if you look at the correlations, it suggests contagion you saw today seems to be a short-term issue. for now, it seems like there might be a little bit more flow favoring that u.s. market. haidi: our bloomberg markets reporter with the latest. take a look at how we are setting up midweek session in asia. what are we seeing? sophie: cost facebook action. yossi 10 year yield testing the 117 level. futures are mixed after the regional index in asia fell below the 200 day moving average, in the red for the year with chinese stocks as the biggest drag. in the currency space, the offer you want holding above 65 two, trading near an april low and this as beijing's crackdown sent ripples. foreign investors will rethink their china stock strategy. check out the aussie dollar

changed ahead of cpi data which may show a jump about 3% in the second quarter, due to base effects and price pressures from oil and food costs. pulling up a chart on the terminal, the reporting rollcall takes on with advances at nissan among the highlights. earnings estimates and asia topped the record we saw in 2018 and we will be watching for the update from rio tinto on dividends with the miner expected in the first half profit of 22 billion dollars, matching all of last year's numbers. shery. shery: let's take a look at earnings here because we are focused on up shares after hours. the company declined to give sales guidance and warned of slowing growth ahead. we are seeing after our pressure at the moment. tim acknowledging supply constraints while touting his performance in china. mark gurman has more on this. markets seem to be focused more on the negatives here but there

were plenty of positives as well. mark: the positives happened in the third quarter. they reported $80 billion in revenue, shattered even the most optimistic expectations. the iphone 12 generated 39 billion dollars in sales, which is a landslide all-time record for the june quarter. investors and analysts are looking towards what is next. apple said that although they will grow double digits over -- year over year for revenue, they did say the growth rate is going to slow primarily due to slower growth in services. services grew in the third quarter by 33% so by one third, because of continued usage of gaming and apple tv and other programs to keep people entertained during covid lockdowns. now, we are getting out of those. services bend will be a little bit less and that will bring down the revenue growth for the

current quarter but at the same time, that all being said, i'm not saying it is a decline. it is still growing so there is still some optimism in front of us. haidi: are there some concerns about supply constraints as well? mark: supply constraints of the iphone and the ipad. he was not clear about what those are in relation to but we believe it comes down to semiconductors or chips. this would be more legacy components. various chips, not on the cutting edge, next-generation processors and technologies surrounding that but more lower costs, chips here and there that going to devices. they said this about the previous quarter related to the ipad and the mac. based on that, they could be lowballing and we might get a bigger quarter for q4 than expected but it will come down to when we get the iphone 13. haidi: we could get a bump with

the new version of the watch as well because the wearables department actually did very well. mark: wearables did well. they did not give more specifics on watch sales. 75% of apple watch buyers in the third quarter were new to the apple watch so that is always an exciting member to analysts and investors alike. there will be a new watch announced in september. there will be a bit of a redesign, new screen technology but major rates all sensors will not come until 2022 alongside a new model for extreme sports. haidi: mark gurman with all things apple. let's get you to su keenan with the first word headlines. su: we start with the cdc which is reversing course on mask mandates in the u.s. it issued an advisory recommending vaccinated people should wear masks in public indoor settings where the virus is spreading rapidly. the agency director says recent

data suggested some vaccinated people can go transmit the delta variant. >> information on the delta variant from several states and other countries indicates that in rare occasions, some vaccinated infected with the delta variant after vaccination may be contagious and spread the virus to others. su: in tokyo, the number of new coronavirus cases hit a fresh record. more than 2800 cases were confirmed in the japanese capital, about double the number from one week earlier. it comes as tens of thousands of visitors are in tokyo for the summer olympics. only about one quarter of japan's population is fully vaccinated. indonesia marked its deadliest today of the pandemic as more than 2000 people died from covid. the southeast asian nation has reported the highest number of deaths worldwide in recent days. the delta variant crippled indonesia's health care system

and depleted supplies of oxygen tanks. new infections dipped to a three week low monday before rebounding to over 45,000 on tuesday. finally, an encouraging statistic out of india which added nearly 30,000 cases of covid. that is actually the lowest daily count since the second wave of the virus began four months ago. the total tally stands at 31.4 million, only 7% of india's population fully vaccinated. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am su keenan. this is bloomberg. ♪ haidi: we are getting some more updates when it comes to these limited takeover talks between spark infrastructure group, the company that owns electricity transmission and distribution networks in australia, and they

are developing plans for massive renewable energy hubs. they have been in talks with kkr. those talks were short of hitting a few glitches, rejecting a joint takeover approach. spark received an offer of two dollars -- $2.73. and now $2.95 per share. they will be engaging with the consortium in the interests of holders to do so. there is no certainty that this new engagement will result in a transaction or but of course, this comes as spark consent that they would be holding limited talks despite earlier rejecting that joint takeover approach which was raised with an initial offer of a 22% premium to the closing price at that point. we will continue to watch those developments but it seems that

the talks between spark and the pension plan and kkr are continuing. shery: we are wanting some headlines crossing the bloomberg from china business news. china could be increasing fiscal spending in the third quarter to sue the economy. according to local media, china could be expanding domestic demand with new policies in the second half. we have seen the chinese markets really take a huge hit given the different crackdowns at the beijing administration is carrying out right now, whether it is tech on the education box or property markets. we are now hearing from cbn that china could be increasing fiscal spending and the third quarter to support the economy. still ahead, we will discuss the global recovery. the imf warning of a widening gap in the global economic recovery. we hear from the chief economist . up next, td securities

representative joins us for what to expect from the fomc meeting. this is bloomberg. ♪

shery: the federal reserve faces a host of conflicting policy signals from surging virus cases to spiking consumer prices and a red-hot housing market. kathleen hays is here to set the stage. they really have to also continue to tell the market that all this inflation is transitory. kathleen: that is something we will see because a lot of people more and more are concerned that maybe it will not be such but that is the question because this is not a meeting where they are expected to do anything on rates, not at all. forward guidance probably will not change. it is a long way off. in fact, tapering, what they will do is talk about it but

most talk about some of the key points. the virus is one of the big things now and that changes the optimistic view of the economy. 6% or 7% gdp is what most economists including the fed are looking for this year. will they stick to a fairly positive view of the economy's recovery in spite of that? in terms of that transitory inflation view, you know, how long can you say it is transitory when the cpi, year-over-year, up over 4.9 percent, five point something percent, when the white house is shifting its messages. it is getting tricky. i want to look at the consumer confidence or work because it is up in june. if the virus is going to hit consumers outlook, it certainly has not done it yet. a pandemic high. expectations holding pretty steady. people's view of their current

conditions, financial and economic conditions, is up to 160. another pandemic high. consumer spending is also looking pretty good. how will the fed deal with that? will they say anything that signals that confidence remains? will jay powell get asked about that? that is another thing everyone will be watching very closely. haidi: what are we expecting when it comes to the debate around tapering mortgage-backed securities? kathleen: the hawks have been arguing for a long time. the recovery is strong. maybe we should make sure that we do not keep emergency stimulus in place when we do not need it. when it comes to mortgage-backed securities, that is an interesting debate because we have four fed bank presidents telling us they are in favor of starting tapering with mortgage-backed securities and doing it sooner rather than later. home price index, look at the

blue circle on the far right. 16.6 is the latest monthly increase year-over-year. that is another 30 year high. that is how long this thing has been in place. when you see that, you say maybe they are right on housing markets. jay powell has been saying treasuries and a lot of forces are affecting that so policy statement, cannot say much. jay powell can say a lot more at the press conference after the meeting. shery: we will be listening. kathleen hays feared our next guest says they do not expect the july fomc meeting to be a significant treasury market mover. let's bring in the global head of rate strategy. always great having you with spn what are you watching at the fomc meeting this week? priya: it will all be about the press conference. timing, pace, composition. we think the discussion has just started and the uncertainty is

very high. there is this new uncertainty about how the delta variant will derail the economy. there is a fine balance which chair powell will try and walk. and yet very patient. that transitory inflation, they will continued to signal they believe it is transitory. i think the markets are priced fairly appropriately for the end taper. i do not think the fed needs to push back against it. there is not a whole lot of market moving events but it depends on how he will frame that tapering discussion. haidi: we have seen real yields plunging to new record lows. the chart on the bloomberg showing you that. where are we going to began what is the broader market location of this? -- be and what is the broader market implication of this? priya: things look extremely attractive from a kerry

standpoint -- carry standpoint. i think it is interesting. real rates have declined as the fed is talking about tapering. is that telling you the fed is pricing in a policy mistake? trying to gauge the reaction function from the fed is important. inflation expectations have actually declined. i think the fed might want to push back against wanting to have an overshoot on the inflation front longer-term beyond just right now and that might let nominal rates -- we think rates are likely to rise into the year-end. we get the fed saying be patient and that will help real rates rise so some of that decline i think is the market saying is the fed tightening too seeing or exiting too soon? haidi: if the inflation and growth scare's are a little bit overdone, does that mean we will see the risk down around the u.s. dollar as well? priya: part of the move in the

dollar is a safe haven. the u.s. is a safe haven asset seeing demand from overseas. high think the exceptionalism story, it of it cobit story. that may be unraveling -- covid story. that may be unraveling with delta in the u.s. we need the fed to clarify about the economic outlook and the reaction function and our views of the dollar can actually we can from here once we sort of settled down and realized that world economic growth is not about to fall off a cliff. haidi: between now and december, were there expectations of the first announcement tapering? what does the fed have to signal to adequately prepare markets for that? priya: that is a great point. they have been suggesting an advanced announcement of taper. they will tell us -- they are

announcing in december. by november or october, they will start to signal clearly to the market to prevent a taper tantrum type scenario. what they need to see is labor force participation picking up. that is the missing piece of the puzzle. we had a strong economy, good job gains, but the labor force participation is not picking up. is that because of the supplemental unemployment insurance? we will get a lot of these answers by september or october in the fall at the labor market shows signs of a recovery. the fed will feel about -- feel better about more slack in the system. the inflation data is going to be important. does the data confirm they were transitory elements to inflation? that would then allow the fed to exit in a more gradual way, allowing every asset class to rice in a gradual reduction in the ex-d amount of accommodation. -- price in a gradual reduction

in the extreme amount of accommodation. shery: we are also watching the after hours trading session of china education docs here in the -- stocks here in the u.s. gains we saw in the new york session extended after hours after we had all of three stocks gaining at least 12%. in the broader context of things, we are talking about these stocks being an average of 91% lower on the year given we have seen a significant hit after regulators in china unveiled an overhaul of the education sector. more than $100 billion of market cap erased from chinese education stocks traded not only here in the u.s., but china and hong kong this year. haidi. haidi: it feels like there is still a section of the market that has pretty healthy risk appetite for getting into china even as we see the fear and potential for contagion and spillover from these limited

sectors. he said he still sees opportunities when it comes to distressed debt. >> what we are doing in investing out there, it actually is, and the reason it is is because there is a lack of capital and that lack of capital is enabling firms like ours to be able to dictate pricing so from what we are trying to do, really what you want is you always want a lot of noise. you want people to be nervous because the more nervous they are, less people will be investing there. for someone like us that has long-term capital, we can end up doing exceptionally well out there. shery: as we continue to see this brought pressure on chinese assets, the question is what happens to the broader markets. we are talking about the chinese and hong kong market caps plunging by $1 trillion.

this chart on the bloomberg showing that the weakness we saw in shares now translated to broader emerging markets as well. haidi: and take a look at the credit market because we see that contagion starting to hit the haven corners of this market. take a look at the biggest government bonds selloff we have seen in 2021. a lot of investors including what we heard from our guest, saying that they are seeing these interesting and compelling buying opportunities, but it feels like we kind of need a little bit more of a buffer to work out exactly what is going on and what the risks are and have we seen a bottoming out when it comes to the selloff? shery: we will be discussing all of that. plenty more to, on -- to come on "daybreak asia." this is bloomberg. ♪

haidi: a quick check of the latest business flash headlines. microsoft reported sales and profit that exceeded estimates. optimism was tempered by stalling growth in its computer cloud business. it accounted for currency fluctuations. a slowdown from previous quarters. sales plunged to $46 billion. net income rising to just over $16 billion. a company is looking for a new ceo as it works to address regulator concerns. the current boss says the company plans to establish multiple headquarters around the world and act as a financial institution with licensing and compliance procedures. rio tinto plans to spend 2.4 billion dollars building a lithium mine in serbia has more

big miners push into metals tied to green energy. the biggest producers are finding themselves with more cash to invest as many books record profits on the commodities rally. rio reports results on wednesday.

shery: china's stock rout triggered by the regulatory crack down -- the offshore yuan fell to a three month low and other em currencies also dropped. let's get more from sydney mackey. this is quite surprising given the chinese yuan has held debbie during other crack downs earlier this year. this gtv chart on the bloomberg showing how the yuan has been stable against the basket of currencies. what is different now? sydney: the biggest thing is

that this regulatory crack down, investors are starting to think that this could happen in other sectors. investors hate uncertainty and that has been a big hit. between that, questions about covid-19, and the more recent delta variant, it is also out of coming together into a more risk off mood across ems. haidi: how are we seeing that play across other em currencies? sydney: on tuesday during new york hours, we saw it spread to latin american currencies, the chilean peso, colombian peso, they all fell during new york trading hours and that just goes on to really show how big of an effect china has on the rest of the world. it is still an emerging market but it is a huge trade partner with a lot of big countries and the second-biggest economy in the world. shery: how is the dollar

factoring in given that we are looking ahead to the fomc meeting? sydney: the dollar is huge. across, emerging markets are very dependent on what is happening with the dollar. tomorrow, traders will be looking to what happens from the fomc and taking cues from the fed to see what the dollar's pass can mean for the rest of emerging-market currencies. haidi: sydney mackey there. some seabright small -- see bright spots. the crackdown could benefit certain corners of the market. >> what is happening is a good thing because what the chinese government is now doing is cracking down on the big companies that dominate various sectors at the exclusion of smaller companies so the regulatory crack down is probably in the long run going

to be good for the chinese market because these companies are not going to get dominant in particular fields and they will allow other companies to come up so there will be very interesting pickings in the small and medium-sized companies. i don't see this as necessarily a very big negative and i realized that the uncertainty of further crackdowns in certain areas is a problem but in the longer run, it's probably a good thing. >> would you be putting money to work right now in china? mark: we have money at work right now in china. we will continue to look at china. india is our biggest allocation now but china is the second largest and we think there will be great opportunities in china and this downturn provides buying opportunities in certain areas. >> what exactly would you be buying right now? mark: it would be in the tech sector. not the big companies but the

smaller companies where the crackdown is having a beneficial impact on them, where they will have room to grow and not be dominated by the tencent or alibaba as of this world so it will be very interesting the way this works out. >> you crackdown them dominant guys and therefore there is more room for the smaller guys to move up it is in your investment going to be cap if those companies cannot grow to the size of what alibaba and tencent were question what --were? mark: it is interesting to see them growing at a fast pace. there is a chance for the smaller companies to come up and grow at a good pace. the other area i am interested in is the medical side because the chinese governments crackdown on medical costs will be beneficial for some companies. it is advantageous for others. >> what are the areas you see?

the chinese government is being active. what else could you see be impacted by some of these regulatory crackdowns from china? mark: indirectly, the consumer sector will be hit because the big companies like alibaba and tencent have dominated the payments area in those consumer sector names and now, the smaller companies will be able to do their own payment systems. that could be beneficial for some of these other companies. >> the other sector in the crosshairs? mark: it's education. there has been a crackdown on part-time education and that sort of thing in china. whenever you have a crackdown like this, other parts of the center benefit because they are not having competition so i would say education will be another area to look at.

shery: mark mobius. let's see how this crackdown across chinese sectors is affecting the broader em markets. sophie, what are you seeing? sophie: we have seen the pullback weigh heavily on the msci index. they are divided on the outlook for em asset's from here on out after it retraced the 12% gain we have seen since february. bernstein still favoring ems on the cyclical recovery play. jp morgan, they are more hesitant, saying it is too early to rotate back given the fed's recent policy strength. pulling up the chart on the terminal, they are taking a longer picture view on chinese markets to demonstrate how this goes beyond the tech tumble. since march 2013, since xi jinping to our, stability goals around politics, finance, and

social dynamics has been a priority over the market. since 2013, we have seen benchmarks lag the world index which had risen more than 100% when the shanghai composite 40% and we have some gauge. the big lagarde in that time with the text crackdown and curbs on the rich exacerbating the weight on chinese assets and pulling up the chart on the terminal, there are signs that economic momentum on the mainland is weakening. we have seen the credit impulse sink. the bottom part of this panel right here is based on growth in bank loans, real freight, and electricity output. signs that the pace of china growth is slowing down, haidi. shery: -- haidi: su keenan with the first one headlines. su: lloyd austin agreed to reassure asean members that washington is committed to

engaging in the region even as he stands up to what he calls china's aggression. he says the u.s. will work with partners to deter conflict including chinese maritime claims in regional waters he highlighted concerns about taiwan and uyghurs in xinjiang. bloomberg learned that china is considering imposing more tariffs on steel exports. this as it tries to cap domestic production and subdue surging prices stoking inflation concerns area we are told that rates range from 10% to 25% and include tariffs on some products not covered by an earlier round. sources say officials want to implement the levies in the third quarter although they are still subject to final approval. president joe biden met with the leading democratic negotiator in infrastructure talks as attempt to crack the bipartisan deal hit multiple snacks. senate negotiators missed another key deadline as

differences remain on both sides including how much unspent covid-19 money can be used for infrastructure. the white house says it is confident that an accord will eventually be struck. fully vaccinated tourists from the e.u. and the u.s. will reportedly be able to travel to england soon. the financial times says boris johnson is expected to open the doors to fully vaccinated tourists later on wednesday, a move that will bring relief to the country's battered tourism industry. in the u.s. says it is maintaining its covid travel bans including on the u.k. and the e.u. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am su keenan. this is bloomberg. shery: we international monetary fund has warned of a dangerous divergence in economic recovery between rich and developing nations with unequal vaccine access playing a major role. as the latest report projects,

the biggest rebound in global economic growth in four decades at 6% for 2021 while downgrading emerging-market 6.3%. the imf chief economist says the delta variant is a big factor affecting the outlook. >> the downgrade for emerging and developing economies is being driven by significant downgrade for emerging a share and that is a consequence of the delta variant spreading quite widely in that region. we have a significant downgrade for india, where the delta variant originated, and now we are seeing cases going up very sharply in malaysia, indonesia, so this is one of the biggest factors behind the downgrade, the delta variant. we have seen cases going up in the u.s. and other parts of the world, where vaccine coverage s are higher. but this is an important risk to our outlook. >> it is stark how different

things are versus 2019 when we did not have the threat presence, when there were hopes of a global synchronized growth. it seems like we are very far away from that global synchronized growth. is there anything that can be done now to even up the growth, lift up developing nations, or is it too little, too late gita: this is unfortunately -- too late? gita: this is unfortunately that affects. we warned of a major divergence and we are seeing it get worse. if you look out into 2025, we have almost no scarring for advanced economies projected and significant scarring for emerging markets and developing economies. what needs to be done first and foremost, we need to get vaccines for the different parts of the world where we have less than one percent and 2% vaccine coverages. which nations which have multiples of what they need,

they need to donate one billion doses between now and the end of this year. there is not one billion doses for next year, between now and the end of this year and this news to happen as soon as possible with 250 million doses happening by september. that is the number one priority. source of the diversions is the different fiscal resources that the advanced economies have much greater relative to other parts of the world and the imf has a special drawing rights allocation. if that is completed, that will help countries deal with difficult trade-offs that they are facing right now. >> you see little scarring going out to 2025, especially given the vaccination rates. i'm wondering if the bigger threat is the possibility of inflation and tighter financial conditions. where do you pin that risk in terms of economic outlook? gita: the inflation story is not wonderful.

if you look at advanced economies and if i take out the u.s., you know, inflation is just fine. yes, it has gone up but for many of them, it is still below their target. in the u.s., we are seeing very high inflation numbers including corinth elation. our study of the data tells us that much of this should be transitory. we have a high inflation rating of 4%. by the end of next year, down to 2.5%. but again, there are risks. we have never seen a recovery like this. we still have the pandemic. there could be supply shocks and breakdowns. figuring out how inflation expectations get set is a real challenge. there could be persistent inflation. in that case, if u.s. monetary policy moves much quicker to raise rates, to taper, then that could indeed trigger a tightening of financial

conditions, which is costly for advanced economies where you have inflated asset valuations but also importantly for the developing world, which relies very heavily on financial conditions of staying the way they are right now. haidi: now was the imf chief economist speaking about the recovery prospects. coming up next, we will be recapping the earnings results out of starbucks on news on the chinese businesses weighing on shares. this is bloomberg. ♪

shery: starbucks reporting quarterly results that outpaced estimates on the back of a strong u.s. recovery but a less optimistic outlook for the key chinese network weight on that. ed ludlow -- weighed on that. ed ludlow, the u.s. was the bright spot for starbucks but china lagging behind. what is going on? ed: in the same period a year ago, starbucks got this value-added tax exemption in china so that distorted the most recent period's earnings but they also downgraded their outlook for full year fiscal 2021 and executives on the call were saying that the recovery in china was nonlinear. in other words, as you know,

consumers and china have been cautious. even within improvement in the global pandemic, they have been cautious in terms of spending, cautious to return to pre-pandemic norms. while the outlook long-term for china, starbucks remains bullish. in the short-term, it is not clear what will be a driver of growth for them because it is not operating in the same way or recovering in the same way it has been in the united states. haidi: it is a big problem because they spent so much on expanding and the chinese market. what kind of a path forward is there post-pandemic? ed: it is the second most important market. they want to add new stores. what was interesting is that the ceo felt the need to say that they have never really experienced any geopolitical problems in china and they do

not expect any geopolitical problems in china. they basically said they have great faith in the strength of the chinese consumer economy. it will take time to come back. they are playing the long game in china, continuing with their strategy that was already in place and as i said, they feel it will be nonlinear. it will take time and it will not necessarily recover in the same way the u.s. market has. haidi: in terms of prices, will that be the path through? ed: kevin johnson felt the need to address this on the call. basically, starbucks conceded they felt inflationary pressures and wage pressures in the united dates but starbucks is the biggest buyer of arabica in the world. they say that they have about 14 months of price installation to

coffee. the current short-term gains we have seen in arabica contracts will not affect them but it was interesting he felt the need to address that. he basically said on the earnings call, i have seen the media reports, and i am telling you that we are insulated from this. yes, domestically, inflation and wage pressures, but it looks like the short-term market dynamic was coming -- it was not heating starbucks. shery: ed ludlow with the latest on starbucks earnings and the coffee futures near the seven-year high but let's take a look at some other earnings across asia. have plenty of them. we have seen brought upside across japanese markets with three days of gains. we perhaps can see a little bit of pressure. we get earnings from nissan and the consensus forecast is for operating losses to approach ¥50 billion in the first quarter and we are expecting earnings from canon and lg display. rio tinto will be posting

first-half earnings after the close in australia today with miner expected to deliver a generous payout to shareholders thanks to soren commodities prices s0 -- we have a little bit of pressure on iron ore futures and fuel futures as well because of report coming from china that perhaps we could see more tariffs on steel exports in china and of course we have had that will often chinese stocks really rippling out into global markets and that has impacted the chinese yuan as well which is now making dollar price commodities more expense of for local manufacturers and we have to mention that with the yuan at the weakest level against the u.s. dollar since april, we are not only concerned about the currency market but also the fact that industrial production and profits growth actually slowed down in june, a gain of

20% or so, easing a little bit. still very high but not as high as before. haidi: this coming as we already have these concerns over global growth that the delta variant and the patching is of the vaccine rollout is going to cause some hurdles for a smooth ongoing recovery but what is also interesting is we have had overtures from the chinese government to try and call the center more broadly as well. it feeds nicely into what they have been trying to do but certainly, one of the key themes we are watching out for in these markets today is whether we continue to see this ripple effect or the spillover effect of the regulatory crackdown in china and the subsequent global selloff that we have seen over the past three days. lots more to, on -- to come on "daybreak asia." this is bloomberg. ♪

>> what is happening is a good thing because what the chinese government is now doing is cracking down on the big companies that dominate various sectors at the exclusion of smaller companies. >> you are seeing a reminder of some of the regulatory issues that persisted in china. >> is always this political tail risk. >> causing some questions to

their exposure. >> foreign investors will have to have a clearer view of sectors which are investable and sectors which are not. >> perhaps they have a little more nervousness and may be want to sort of sit on their hands over what is normally -- >> there is no way any investor can ignore china. >> you have to be wary. haidi: global investors are blindsided by the china crackdown. we will be hearing more from mark mobius in a few minutes time and we will be looking at beijing's motivations for this crackdown and which sectors could be next. our guest will be joining us with his use. little bit later on, smart money playing in the fallout of the china stock row. sean bars be will be joining us -- sean will be joining us. shery: we will be seeing the pressure on asian futures. what stocks are you watching, sophie? sophie: we are keeping a close

eye on lg display afterward ported -- it reported -- the company warned that sales growth may slow. flipping the board, keeping an eye on mitsubishi motors in tokyo. the company back in the black. nissan reporting today. results from japanese chip players. in sydney, switching out the board, keeping an eye on rio tinto with first-half results due this wednesday. bhp making an all-cash copper for a canadian nickel miner as it pushes into the green energy space. we are also watching spark this morning as the kkr led consortium entered talks with the group after sweetening its offer. shery. shery: let's get a quick check of the business flash headlines

paid apple third quarter earnings past expectations with revenue of $81 billion. sales were up with iphone sales increasing nearly 50% to just shy of $40 billion in the last quarter. the excitement was tempered after it warmed sales growth may be slowing and supplies are getting tight. apple declined to provide a specific revenue forecast for the current quarter. a rebound in digital ads helps alphabets quarterly earnings beat wall street forecasts. profit came in at $27.26 a share, topping the average estimate. the advertising business was boosted by marketers spending more to convince consumers to travel and shop has more countries eased restrictions. microsoft reported sales and profits that exceeded estimates for a 10th straight quarter. optimism was tempered by slowing growth in its computing business. azure sales rose 45%.

a slowdown from previous quarters. we have the japan, korean and, australian opens, next. this is bloomberg. ♪

>> hello and welcome to "daybreak asia". i'm shery ahn in new york. sophie: i'm sophie kamaruddin in hong kong. >> taking a look at the major markets opening now. our top stories. asia is set for a risk off open after u.s. assisted chinese shares soared. a big day for big tech.

apple, and microsoft have a mix after hours. as evergrande's billing scrambles to keep his empire from scrambling, ubs has another 40% drop in the share price. shery: japan, south korea and australia coming off line, how are we looking? sophie: ek two to five snapping a three-day gain, lower by 1% member said japan stock prices warrant attention. we have seen tech arrange about early may, not by bridging that 20,000 level handle yet. the yen is trading near a one-week high. this is the latest number from tokyo, which topped 2800 and hit a record on tuesday. we are seeing safe haven move this morning with gdp gaining ground. nissan is among companies from japan. we are going to get results from brand names. we had lg display already

reporting second-quarter numbers delivering on the on operating profit pair kospi most of the downside by 4/10 of a percent. korean won by 1154 as we get some optimism around the outlook for south korea. imf upgrading gdp forecast for south korea. now switching out the board to check in with the open and cindy after it hit a record close. pulling back by a 10th of a percent. keeping a close eye on rio tinto. and we have infrastructure on watch, this as the kkr led consortium has its bid allowing the talks with spark. head of cpi data is due from australia. aussie dollar has a little changes morning. we have the offshore u.n. holding above 662 as we saw the volatility jump for the currency. and we are seeing angst show up in opsin -- option trading for the u.n.. 654 may be the level to watch. we are seeing nasdaq futures

under pressure as well. this as the anxiety over the china tech rout continues. haidi: it does continue. our next guest remains neutral on china. that's valuation relative to broader em is not cheap. joining us as the portfolio manager for e spring investment. if you take a look at where valuations have ended up over the past best part of the week, you can see that it kind of started on friday. does the valuation picture change when it comes to your views on china assets, or does it reinforce across developed markets? >> good morning. when you look at the valuations, particularly price-to-earnings relative to the rest of broader emerging markets, it still looks fairly priced despite the recent underperformance we have seen. again, we look at the chinese markets from a top-down perspective and we think there is a lot of things going on in the chinese markets, which keeps

us neutral in it. for instance, not just the tech regulation, but also macro policy has been tightening over the last few months as china was the first that fell from the pandemic. and the effect has been the economic data. chinese economic data has not been surprising to the upside as much as the other emerging markets. from that perspective, in order for us to be more positive on the chinese equity market, we will need to see some pickup and economic growth, as well as an easy -- easing of financial conditions. which we have not seen so far. haidi: we did get a rrr move. we are expecting more moves with fiscal conditions, with stimulus and a third quarter. with that change your assessment? >> if those stimulus measures do indeed cause a pretty significant uptick in growth, then, yes. but as the movement -- moment,

we need to have the data evidence back because it's not about the absolute data and china, but we look at it from a relative perspective and determine which need to be more attractive. develop markets are still the place to be. shery: where in developed markets, given that we have seen a significant upside already? >> u.s. equities for us. we know that they easy gains have already been made because we have already seen the reopening trade stay out. but despite that, there are pockets in the u.s., u.s. markets within the cyclical sectors, which has been seen in the underperformance over the last few months. we still do think there is value there. as long as the federal reserve does not preemptively turn to hawkish, as the statement in june suggested, as long as they don't taper too quickly, we think the equity market will be able to absorb the monetary policy change.

>> so what are you expecting from the fed tomorrow? >> based on the statements that chairman powell made, it does look like the fed is going to start to talk a little bit about how these planted taper and when they plan to taper. at the moment we expect that the fomc will be fairly balanced. they have realized the effect that the june statements have had on the markets. we have seen significant flattening of the yield curve. federal reserve perspective general prefer the yield curve because that shows the confidence that economic growth. and with the delta variant, -- delta variant rampant across the world, it will be more valid. two key things, one, any indication of timeline on the tapering, and second, and the indication of what else they need to see before they have policies. shery: thank you so much for that. let's go to su keenan with the first word headlines.

>> we start with the international monetary from the imf maintaining its outlook from the economic rebound and for decades. this while changing underlying regional forecast. it says world output is still expected to grow 6% in 2021 after last year's 3.2% drop, but it warmed unequal vaccine actors continue to widen the recovery gap for developing economies. the u.k. got the biggest bump among majoring economies with the imf seeing a growth rate of 7% in 2021. indonesia, marking its deadliest day of the pandemic is more than 2000 people died from covid. the southeast asian nation has reported the highest number of deaths worldwide in recent days. the delta variant has crippled indonesia's health care system and depleted supplies of oxygen tanks. new infections dipped to a three week low on monday before

rebounding to more than 45,000 on tuesday. in tokyo, the number of new coronavirus cases hit a fresh record. 2800 cases were confirmed on the japanese capital. that's about double the number from just a week ago. it comes as tens of thousands of visitors are in tokyo for the summer olympics, and only a quarter of japan's population is fully vaccinated. finally, u.s. secretary of defense lloyd austin has tried to reassure her members that washington is committed to engaging in the region, even as it stands up to what he calls, china's aggression. the u.s. will work with partners , including chinese maritime claims and regional waters. he also highlighted concerns about taiwan and the uighurs. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries.

i'm su keenan, this is bloomberg. haidi: and says china is entering a new decade of internet regulation of a decorative what he calls while -- we will discuss what sectors they could be targeting next. taking a look at the tech giant apple and alphabet after sales surge in the last quarter. this is bloomberg. ♪

shery: let's take a look at those big tech earnings in the u.s., apple and alphabet both seeing topline numbers beating estimates with alphabets add sales and apple service revenue showing healthy growth. joining us for the details's bloomberg tv west coast reporter ed ludlow. let's start with apple, another huge quarter for them shattering revenue expectations. >> it's really all about the

iphone. more than $80 billion of revenue, almost half of that being from iphone. what the company is saying is you are seeing the reopening of bearish economies bringing foot traffic to apple stores. especially here in the united states, apple closed and reopened stores in different states. at the same time, the 5g super cycle goes on. there's good evidence that people are taking to 5g. that is driving adoption. it's not just in america, it is in china. the iphone 12 promax is doing very well. and emerging markets like india and services had a very strong quarter, contributing not just of the top line but the bottom line as well. >> what is the concern? is it about supply issues or the stage we are at in terms of new product and new versions? >> the fiscal third quarter is very strong. the outlook for the fiscal fourth-quarter is pretty tepid. they do expect double digit

growth, but not to the same level. services growth in particular to slow down. at the same time, just like everyone else, apple candidly talking about supply chain issues, not just in semiconductors, although that continues to be a problem that constrains them for certain products. but also freight, this is an issue we are encountering in corporate america on a daily basis. people are saying they are overpaying. they are having difficulty getting different parts. they are having difficulty moving things around. that has a material impact on the company's performance. that's one thing to look for. a member with apple that a lot of excitement comes in in september and october when we get product launches. perhaps they are waiting for that. shery: the apple stock is under pressure. different story for alphabet. the stock is higher after hours. what was good there? >> we came into the earnings season knowing advertising will be strong. wall street expecting the chair

end and covid continuing. alphabet, the parent of google is case in point. he saw a rebound in their appetite doing business when people started traveling again and with people shopping in retail again. also youtube. youtube has more than 100 million active users now in the united states. netflix, by comparison has 70 million active users in the u.s. and canada. it gives you a sense of scale of how important youtube is coming and there were very good signs. youtube and google are thinking about how to monetize that service. a really strong performance. in a performance in the cloud unit. in the course of where microsoft trailed behind in that sense. haidi: our west coast reporter there. heading into the rest of the day here in asia, we will be watching some of these apple

suppliers in this part of the world. sophie: we are seeing weakness with names, this after apple said the sales growth may close. they are losing more than 1% this morning. we do have tbk under pressure as well. that weakness is filtering into the space advance losing more than 2% our results do. lg display, which applies to apple, we are seeing it gained some ground up a tent are present on its operating profit in the second quarter. shery: let's talk about the selloff in chinese equities because of the government crackdown on several sectors. it does not seem to be scaring ceo mark lasser he and interview with taylor riggs, they said that now is a good time to be investing in china. >> i think for what we are doing and investing out there, it actually is. the reason it is is because

there is a lack of capital. in that lack of capital is enabling firms like ours to be able to dictate pricing. so, from what we are trying to do, really what you want is you always want a lot of noise, you want people to be nervous, because the more nervous they are, less people will be investing. for someone like us that has long-term capital, we could end up doing exceptionally well. >> but, how do you measure the fundamentals of a company with the stroke of a pen, beijing changes the rules? >> so what we do is we invest in liquidation value and the asset value of a company. so when we are investing, we are lending money on a seeing basis. so it's kind of hard for asset values to go down. i think when you are talking about the stroke of a pen, that's for the equity value of these companies. it won't be on the debt side.

>> let's talk about some of the distressed investing. it has been a relatively good investment in the u.s. during the pandemic. a lot of folks made bets on companies and a lot of folks were left for dead. that has been a relatively profitable play for some folks. as we move to the next stage of this economic recovery, where are the opportunities in that space? >> i think the u.s. is kind of hard right now. there is less distress opportunities. congress is doing great, you will have gdp, which will be somewhere between 3%-5%. the role we are doing will be specialty lending. lending money to people who can't borrow or they have issues. where we are seeing the opportunities is in that space. we are seeing the same thing in europe and asia. it's a need for capital where banks aren't there. it could be all different

industries, but really what it is is a company that can't get traditional financing. >> we are talking about the difference between equity valuation and the debt investing in china. just a follow on there, do you trust the accounting of the companies coming out of china changing the equity valuations with risk from beijing? does that not impact the valuation? >> it would if what we were doing investing in those companies in china. what we are doing is we are going to buy loans. so it's companies that are already in trouble, you are buying distressed loans, specialty loans. you are dealing in jurisdictions like hong kong and singapore. so, i think for us, what we are doing is just buying after there has already been all these problems. we are not doing it in the beginning when everything looks great. it's always towards the end when the issues have already come

out. therefore we know what the asset value is. >> expecting plenty more issues coming out of china at the moment? >> i love issues. the more issues there are, the better it is for us. and i think you are going to have issues coming out of china. >> what about in the u.s., when the federal reserve comes tomorrow and they seemingly want to continue supporting the economy? whether it's in the part -- public markets, housing markets, but the focus is jobs rather than worrying about asset prices. does that mean that the opportunity to get into distress, is that much further off in the united states? >> that i think you are correct on. it's harder because the fed will continue to make it easy for people to borrow. and if it's easy for people to borrow, there's not that day of reckoning. that's why i said for us, right

now, the only thing we can do in the u.s. is we are lending money where we think we are over secure, to people who need to borrow, and they can't get traditional financing. but you are absolutely right and what you are saying with what the fed is doing. their focus is very much on jobs. even though i've never seen it, and i don't think we have, where the economy is doing great in the fed keeps on making sure that people can borrow at pretty much zero. >> has the fed eroded your price discovery? >> the fed is making things difficult for us, but i have learned, don't fight the fed, it's a losing battle. they've got more money than we do. we tried to stay out of their way. haidi: the capital management ceo and cofounder talking about opportunities and just the upheaval we have seen in the chinese market and chinese a date -- chinese adjacent

markets. we are seeing tencent own we chat and they are suspending new user sign-ups at least until august, saying this is because of a scheduled technical upgrade and assessment in line with regulations and legal requirements. it's interesting though, because much like the impacts of normally new users, everyone who will use we chat already has one point two 4 billion users, billion active users. i think the user growth would be between 3% to 3.9% for the third quarter and for this year. perhaps not a huge impact, but certainly more uncertainty for the sector. shery: we have seen big-time investors like kathy wood already unloading those tech shares, those chinese shares. tencent almost lowered every day. we continue to watch the regulatory fallout across china.

haidi: this is far from the days when the tencent was the absolute darling. be sure to tune into bloomberg radio to get more from the newsmakers, you can get the in-depth analysis from our daybreak team. broadcasting live from our studio in hong kong. you can go to radio plus or bloombergradio.com. more ahead, this is bloomberg. ♪

haidi: this is one of the rises we are seeing so far in this sydney session. this after the company saying they would be re-engaging when it comes to a takeover. teachers pension plan board and the consortium are back at the table after the partners made that improved bid.

earning a stake in electricity transmission and distribution networks in australia. they are behind plans for the renewable energy hub. it will be with due according to a segment made earlier. they will have 95 aussie a share. that's two dollars 76 cents a share -- $2.36 a share. at about 40 billion aussie dollars. the previous had been rejected as being too low, but it does seem to be enough to progress the talks. shery: let's now take a look at the latest business flash headlines because we are watching another company in australia, rio tinto planning to send $2.4 billion building a minor as more minors are tied to the green energy push. the biggest producers are finding themselves have -- having more cash to invest on

the commodities rally. they have results on wednesday. earlier they announced plans to buy the owner of a canadian project with the component -- component of the ev battery. finance -- binance is looking for a new ceo. the company plans to establish what the bill headquarters around the world and act as a financial institution with licensing and compliance procedures. the world's biggest crypto exchange is facing scrutiny by various agencies in the u.s., thailand, and the cayman islands. haidi: starbucks quarterly results beat estimates of a strong u.s. recovery, but slowing china growth dampened the mood. it is a key gauge of restaurant success. it rose 73%. but in china, they were way below estimates. it highlights the challenge for starbucks as it rapidly expands and china. it has 5000 locations in the region and is planning 600 new

ones this year. microsoft reported sales that exceeded estimates. optimism was temporary. by slowing growth in its cloud computing business, sales rose 45% after accounting for fluctuation, marking a slowdown from previous quarters. fourth quarter sales climbed 21% to 46 billion dollars, with net income rising to just over 16 billion. haidi: let's get a broad check across our equities and trading. three days of declines now on account of the china regulatory clamp down on the associated selloff. we are seeing broad losses across the region. nikkei 225 down by 8/10 of 1%. cova numbers climb with tokyo olympics ongoing. sydney stocks are ahead of the inflation numbers for the quarter, second quarter inflation expected to have ticked up to 7/10 of 1%.

giving more support to the aussie. kiwi stocks are up by a quarter of 1%. coming up next on daybreak asia, the crackdown that has wiped out $1 trillion in values for chinese in business, it's never just another day. it's the big sale, or the big presentation. the day where everything goes right. or the one where nothing does. with comcast business you get the network that can deliver gig speeds to the most businesses and advanced cybersecurity to protect every device on it— all backed by a dedicated team, 24/7. every day in business is a big day. we'll keep you ready for what's next. comcast business powering possibilities.

>> we have breaking news. pemex has been downgraded, the state oil company of new mexico. we have seen president over door pledging to revive the company to its status as the driver of the mexican economy. moody's downgrading pemex to be a three -- ba3. public bonds outstanding at almost 2 trillion mexican pesos. we will be watching pemex when it starts trading on wednesday in the new york session.

investors have been reacting to china's crackdown on multiple private sectors and the resulting stock meltdowns. take a listen to what they have been telling us. >> what is happening is a good thing. what the chinese government is doing is cracking down on the big companies that dominate various sectors. >> you are seeing a reminder of the regulatory issues in china. it is causing some to question their exposure. >> investors will have to have a clearer view of the sector. >> investors who have more nervousness may want to sit on their hands where they would normally -- >> i don't know what the chinese government is going to do next. you have to be wary.

>> beijing has wiped out $1 trillion in value from stocks. investors split on whether that presents an opportunity to buy. is this the bottom, or is it catch a falling knife in terms of which sector gets impacted next? >> this is a risk we have been highlighting since the end of last year beginning with alibaba. interestingly, if we talk about sector rotation, value versus growth, china internet has been considered a growth sector. lately these names have been popping up as value streams. eight goes to show how much these names have fallen. we expect volatility could

remain high given that earnings season is around the corner, but a lot of this will depend on how results and guidance comes in. we think there are too many unknowns at this point. but we think the risk premium will come down once clarity becomes more clear. we think when the dust settles, valuations may not be what they once were, given the growth outlooks may have changed. >> we have seen the education stocks crackdown. what sectors are there left? >> no sectors have been immune. defensive sectors with high

yield, low volatilities, have performed relatively better traditionally during a market downturn. this is what our sector scorecard is showing. the second half of the year, there are pockets of strength we are looking at. we are looking at i.t. hardware. broadening 5g rollout. new energy material, structural tailwind. we think the china ppi inflation along with a stable consumer recovery could benefit downstream sectors such as staples. >> let's get your check of the markets. >> taking a look at the equity markets, aussie shares retreating from a record high. resource and tech names dragging the most.

japanese stocks are on a three-day gain. the kospi little changed, the korean won on the back foot. consumer confidence fell in july for the first time this year with half the country under semi lockdown. we have korea coming out with its latest covid case counts. they have updated the covid does count. that covers 13.6% of the population being fully vaccinated. the offshore yuan trading around a 652 level. the wider downturn for chinese assets. the worst day tuesday since october. some of the stock movers of note across asia this wednesday, we are seeing mitsubishi motors gain ground.

profit recovery continuing. a price tag rate of ¥350. sydney, santa barbara falling more than 3%. check out the infrastructure shares jumping to a june 2017 hi, trading just around the 277 level. >> let's turn to su keenan. >> the cdc reversing course on mask mandates in the u.s.. has issued an advisory recommending vaccinated people should wear masks in public indoor settings where the virus is spreading rapidly. the agency's director says recent data suggests some vaccinated people can still transmit the delta variant. collects information on the delta variant from several

states and other countries indicates that on rare occasion, some vaccinated people infected with the delta variant after vaccination may be contagious and spread the virus to others. >> encouraging statistic out of india, which added 30,000 cases of covid. the lowest daily count since the second wave of the virus began four months ago. the total count stands at 31.4 million. only about 7% of india's population is fully vaccinated. china is considering imposing more tariffs on steel exports. we are told rates have been proposed ranging 10% to 25% and include tariffs on some products not covered by an earlier ground.

sources say they want to implement the levies in the third quarter. in the u.s., joe biden has met with the lead democratic negotiator in infrastructure talks. this is after a bipartisan deal hit multiple snags. negotiators missed another key deadline as differences remain on both sides including how much unspent covid-19 money can be used are infrastructure. the white house says it is confident and accord will be struck. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. >> more to come on "daybreak: asia." ♪

>> sentiment souring across markets in china. risks rising in the credit space when it comes to corporate bond defaults. we are seeing at top levels we saw for the full year of 2020. we are talking about missed payments by chinese corporate's. more than $21 billion. real estate developers making more than 30% of those. we are watching this closely, but for those that have already

looked at the bond defaults, the bond and credit markets, both companies are now the multinational corporations being more hesitant when it comes to borrowing money to go on a shopping spree overseas. take a look at the graphics. those companies, going more overseas for m&a, has been on track to come and at the lowest level in seven years. the first half of this year we saw the loan demand coming from those chinese multinationals really shrink. if we continue at this pace we are talking about the lowest level in seven years, not surprising given we are seeing so many different crackdowns across the chinese markets. the government making it more difficult for chinese companies to go overseas. cooling already since 2017. in a few minutes we will get one of the first indications of market direction.

u.s. listed chinese shares, we have seen already extending the market meltdown amid china's broad-based crackdown. our next guest says there is no need to overreact and sees value opportunities. joining us as an adjunct professor at nyu school of law. great to have you with us. we really don't know where beijing will strike next. how do you hedge? >> for the investor, the key is to avoid investments the government may consider benefiting -- at the cost of the broad society. negative private effects. these sectors will be vulnerable to tighter regulation.

for example, health care is an important sector. or gaming. tencent has started using facial recognition to make sure teenagers will not play games into the night. more broadly, these will be viewed as important resources of the economy. the government will regulate them to the benefit of the -- >> what does this say about where beijing sees foreign money going? are they being antagonistic? or is it just that they want it in their own way, within their own structure and developing capital markets? >> the crackdown is against

capital influence. the key term from the government is prevent the disorderly expansion of capital. to your point, the existence of foreign investor and foreign capital relating to the tech sector, don't forget this is the area that has limitations for ownership. that is why companies like alibaba would use vague structures in the cayman islands. on top of that, in connection with sectors, you have data

sovereignty, data security -- >> how do you adequately discount when you don't know the extent of the impact of the crackdown? how do you model valuation when it comes to a sector like education tech which may be priced out of existence? >> good question. they are familiar with the state owned enterprises listed overseas. telecom companies, etc.. they rarely do so for the private tech sector companies. the standard for ipo's. this is a tipping point for chinese regulation in the sector.

another example was the criminal crackdown starting in may when the china government announced an attack on crypto mining. many people said they would not really enforce it. the private education sector, people heard about this. people start discounting. people need to start to discount chinese stocks for these regulatory risks. they have to have time for reasonable valuation and potential exit. >> it is just working out. great to have you with us. coming up next, property and homes increasingly unaffordable. ♪

>> private developers are among the biggest losers in china and hong kong. analysts are expecting long-term restrictions after beijing's efforts ramped up with several policy announcements. let's get the details.

it feels like we have been covering the property market and the policies to try and make housing affordable in china for the longest time. what are we seeing now? >> we have seen an onslaught of regulatory issues. this time there are signals showing this is different. the vice premier has said they do not plan to use property as a short-term tool to bolster the economy again. also, the housing bureau has said they will hold local officials where they seem huge spikes in property prices, the cities where they see these spikes, they will hold these officials accountable. these are two pretty strong signs the government is very serious. if you take a step back, the crackdowns in the property sector mirror those we are seeing in the education sector and other private businesses.

these are some of the biggest sectors that have been blamed for increasing in equity -- inequity. policy right now is to go after these sectors that have been accused of hoarding wealth and creating social inequity. >> the real estate sector accounting for 10% of the chinese economy, right? how challenging is it that you try to tamp down prices but not heard broader growth? >> china has not been able to tame the rising prices in property partly because of the inflationary environment and chinese households tend to use property as a way to restore and maintain their wealth. the government has a pretty delicate policy after the sheer amount of exposure the chinese banking system has the property sector. it is the biggest exposure they

have in terms of loans. the sector accounts for 28% outstanding loans for chinese banks. they need to be sure they are not triggering any systemic risk when they try to hurt property prices -- curb property prices. >> one of those troubled developers that could lead to systemic prices is evergrande. it is becoming the biggest financial worries in a nation with no shortage of financial concerns. let's bring in our china credit editor. every day we have new headlines about evergrande. give us the latest. last night it was about them not providing a special dividend. evergrande did this u-turn, it is not going to provide the special dividend to its equity investors.

while in some ways that could -- the overall message is that things are not organized. confidence for investors, it is hard to maintain that if evergrande is changing its plans that way. >> you talk about confidence. investor confidence, but also well-connected friends. is he running out of options here? >> it does feel like it is a little bit different this time. looking for example at the levels of the bonds, the story of evergrande has been the company getting to the brink of liquidity crisis these but always being able to save it. we have not seen them pulling something out of the bag the way they have previous years. we get into this vicious cycle where it is really difficult to

lift confidence. positive news or a big stake sale would be hard to change the direction of investor sentiment. >> what is next for evergrande given that beijing seems determined to crackdown on all these sectors of the economy? >> one important factor is to put evergrande into this context of a broader crackdown on private firms in education, the property sector. what is key for evergrande will be the upcoming maturity in the next eight months or so. $2 billion coming due. in the shorter-term, this question remains about liabilities. how is evergrande going to continue servicing all of that debt and keeping things afloat while investor confidence and banking is coming into doubt?

>> no surprises, big focus on the chinese tech rout. the hsi and the csi. we are just a half-hour away from the open of those markets. david, what are you stealing yourself -- steeling yourself for? >> i need sleep, i am so tired. the last 60 minutes, people got margin calls. i was half tempted to call my tattoo guy just to numb the pain. on a more serious note, we have had a look at the data. technicals first and foremost is one of the things we are tracking. this has gone from what normally

is a normally distributed curve, bell curve, now massively skewed. just hundreds of companies, in this case 600, are in oversold territory. we will see whether investors take advantage of this. >> can they take advantage of cheaper prices? can we see value now? >> value certainly emerged. what has stood out, and i'm sure you have talked to your share of analysts here, is that we have heard the line, the tech corrector is done. that was weeks ago. fundamentally sound balance sheets. is that changing the way we should look at value and changing the way we should actually approach valuing these companies? we played around with the data.

there are 8000 listed companies and hong kong and china. about 2000 are now actually trading below 2016. 2016 levels. is it time to buy? >> looking at how many of those may fall into tentative -- sensitive sectors -- who are you talking to to glean more intelligence on this? >> sean darby is going to be here. of course let's not forget the fed, a big day. can't wait really for the open that is coming up in 24 minutes. >> stick around, you are in good hands with david ingles.

market coverage continues. bloomberg markets, china open is next. ♪

>> 9:00 a.m. in beijing and shanghai. >> good morning. counting down to the open again. we will see what happens. our top story, beijing's crackdown has investors fleeing chinese markets raising fears of contagion. yvonne: the property sector back in beijing's crosshairs as it tries to rain a