Haining Zha

[music] Hello I'm Greg Bonnell and welcome to MoneyTalk Live which is brought to you by TD Direct Investing. every day I'll be joined by guests from across TD many of whom you will only see here. We we'll take you through it's moving the markets and answer your questions about investing. Coming up on today show: ahead of this weekend's China party Congress, we will discuss whether any big policy changes could be on the way for the world's second-largest economy with TD Asset Management Haining Zha. NR Anthony Okolie will join us with an update on that red-hot inflation report today. Multi-decade highs and we will try to discern what it means for the US Federal Reserve in the future. So here's how you get in touch with us. Just email moneytalklive@td.com or Philip that of your response box right under the video player here on WebBroker. Now it before he gets all that, let's get you an update on the market. It's an interesting one indeed. The latest US inflation, core inflation is hotter than expected, the markets taking a tumble right out of the gate and some very interesting price action in the past hour so we are firmly in positive territory now after starting firmly in the red on both Bay Street and Wall Street. We will start here on home, looking at crude oil in the green up almost to the tune of 2%, a three and four point gain right now, the TSX for 18,510 of course you're watching the markets from the open, this is a much different pitch than we were just seeing a couple of hours ago. 1.7% of the upside. Let's check on some of the major pinch points in the market. Gold was under pressure today. You still have Barrick Gold down to the tune of about 4%. Gold itself off the lows of the session but did plunge pretty dramatically on the heels of that inflationary report. But, we saw a big turnaround in some of the energy names. Let's check in on Cenovus right now. Up a little more, a little bit of pain but almost up to 25 bucks a share now. And Shopify, interesting tech got pretty hard right of the gate. Shopify well off the lows of the session still not in positive territory…not quite as low as it was at the session. Big turnaround on Wall Street let's check out that broader read of the American market, the S&P 500 up almost 1 3/4 of a percent, again if you're watching the trade of the opening at 9 AM Eastern time, it was a pretty different picture. Right now seeing strength and the energy names, financial south of the border, the NASDAQ, the tech heavy indices finding its way into positive territory finding its way to 1/2%. Amazon, it was a weak point for the market. The well off the lows of the session. It continues to grind off those lows, down a little more than 1%. And that's your market update. This weekend we will see the 20th China Communist Party Congress Take Pl. in Beijing. It is widely expected that Pres. Xi Jinping will see his mandate extended. But there is also potential changes coming to China's zero colour policy which is hampered economic growth. Joining us now for more is hiding's, Portfolio Manager at TD Asset Management. Let's talk with the importance of this meaning that we have coming in just a couple of days. This meeting coming in just a couple of days. Joining us is Haining Zha. >> Usually people's focus will be on the transition of the highest leadership but as we know, at this time, there will not be any change in highest leadership. Nonetheless, market will pay attention to some of the other watch points. For example, if a successor will appear, although he might not have immediate impact right now, it could take the leadership Road in five or 10 years down the road. Another watch point is the premier, the head of the executive arm of the government, still has a lot of influence on the policy and on the economy. Earlier this year, premier Lee in April and May came out and stabilized market expectations of a still a lot of impact on the market. Another watch point is the senior economic advisor of Pres. Xi Jinping which is also deputy premier. He has a lot of influence on economic policy and he is probably expected to retire. So those are some of the watch points. Also, related to that it will be interesting to observe if there is any of the traditional rules that will be broken. For example, during the leadership transition, there is typically a 67, 68 rule. When it comes to appointment. Basically that rule says if a person is at 67, he probably can stain his position. But if he reaches the age of 68, then he probably will be expected to retire. But as we know, many of the other rules have already been broken under the Pres. Xi Jinping's leadership so it will be interesting to observe if that happens at this time around. >> So a lot of intrigue to watch there in terms of who's going to be setting policy and what influence they could have in the years to come. What about the zero COVID policy. Obviously we know that China has struggled to contain outbreaks. This policy has been pretty hard on the economy. Any chance that we can see it eased on the other side of this? >> Right. That is also the key focal point of the market. And a few weeks ago, the market actually expected that the Chinese government would gradually shift away from zero COVID policy because of the economic pressure. So this theory behind it is that, you know, before the parties Congress, given that it is the most important event, if you lose in the policy prematurely and the cases rise up, that might create some protests and destabilize the whole situation and potentially it can get out of control. So, after the party Congress this issue will probably disappear. That was a speculation. On top of that, we are also seeing some positive signs for example… One of the key policy execution strategies for Chinese government is always doing a piloting program. But indeed, zero COVID policy case is very hard to do Pilate. In any city, as you know. Because it is highly transmissible. Nonetheless, Hong Kong and… Is a perfect sandbox and recently we have seen the Hong Kong government already send their cola quarantine policy by similar token, the… Government recently through conversation with the Chinese government, also mentioning their communication that packaged tour and issues probably back at the beginning of November so those are some very positive signs. Also, recently there was a news report that my dharna is actually an active discussion with Chinese âudio cut¸mRNA in a trial pipeline. It is actually approved for emergency use in Indonesia. So those are a couple of positive signs. So we remain hopeful that at least two or three days ago. But recently, the news report from the state media reiterated that the government, the zero COVID policy is sustainable and, you know, the Chinese are going to stick to a zero COVID policy. So that basically, you know, probably crushed markets. A very quick shift away from zero COVID policy. >> There is a lot of concern obviously globally that we will see a recession next year because of aggressive action from central banks. I know the People's Bank of China has been on a different path but what is the economic situation looking like in China? Even if they didn't say "we will ease up on the zero COVID policy and allow economic growth there. " Are they facing the same challenges as other Nations are? >> There facing the same challenge and probably more so because of the destruction from COVID as well as the real estate slump. So if you look at some of the data from real estate sectors, the investment was down single digits this year. The housing starts by area, down more than 20% this year. Housing sales down more than 30%. And if you look at some of the leading indicators for real estate markets, for example the land purchase is down almost 50%. That means next year you probably will run into some growth issues as well. So things that are definitely not looking good. >> A great start to the program and lots of insights to come. We will get your questions of the Chinese economy and markets in just a moment's time. A reminder of course did you get in touch of us at any time. Just email moneytalklive@td.com or fellow that your response box right into the video player right here on WebBroker. now let's get you updated on the world of business news and how the markets are trading. Roy Lepage expects Canadian home prices to end the year slightly lower than 2021 levels. Erasing all gains from the start of this year. The real estate brokerage says the housing market continues to adjust to higher borrowing costs. In September failed to bring the usual seasonal boost in sales. The Bank of Canada is expected to raise its trendsetting rate once again later this month, following several jumbo sized hikes this year. Delta Air Lines expects the surgeon travel demand over the Summer to continue as its forecasting a stronger-than-expected profit in its current quarter. While leisure travel was the first to rebound, Delta says corporate bookings except the following Labor Day closing on the pre-pandemic levels. The optimistic outlook for travel demands come despite fears of global economic slowdown. Shares of Artizia are in the spotlight today that as the Vancouver-based clothing retailer forecast revenue jump of 30% for the third quarter. Artizia also handed Ian an earnings beat for its most recent quarter, pointing to growth in the United States and strength in its online business. And here's how the benchmark index in Canada is trading. Downward pressure on equities a big jump in bond yields but see things seems to be shifting, more than 300 points right now 1.7% on the TSX Composite Index and in the United States, let's check in the S&P 500, that broader read of the American market again, same story, starting pretty solidly in The RedWood grinding its way higher higher to 3639. We are back now if Haining Zha taking your questions about Chinese economy and markets. How big of a risk as the Chinese property market right now? These are interesting times for property in China during walk us through it. >> Right. As I mentioned earlier, all of the data from the real estate market is really, really poor. Actually, to revisit where we get to from here, it's actually a voluntary, you know, crush of the bubble from Chinese government. Two years ago, they established a redline to limit the amount of leverage and read the real estate sector. But it could take. Now what their cash flows, stop flowing into the real estate sector, all of these problems just reveal themselves. I think, earlier this year, Chinese governments are still trying to restrict a credit flow into the real estate sector. But more so, looking at the current Islam of the real estate sector, they are trying to adjust their policy. Recently we noticed that, for example, the government lowers long term loan prime rate. Which is linked to the household mortgage rate. Trying to support demand. And also, they are trying to lower the borrowing costs for any borrowing from the housing provident fund recently. For many cities, they are removing the purchasing restrictions. But, in my opinion, those measures are probably not enough. Because right now, for example, if you think about the credit flowing into the real estate sector, gift,, it's not fully revealed as a bank, probably you still want to lend to the real estate sector but now you know those companies will probably in danger of bankruptcy. So the banks will be a lot more cautious. So even if the government wants to support it, probably any credit lending will be through the local government coordination and negotiation. So there is still a lot of work to do. >> It's one thing of course to see a slowdown in real estate and in turn, that kind of market, the economic impact it has. It has an effect on homeowners and the wealth effect flowing through to their spending habits but you mention the fact they are that perhaps even some financial risk? Is there a risk here that this would spread into the financial system? >> Yes there is such a risk. If you look at, for example, how the optional debt of the real estate developer, where it is priced at, certainly there is, it is implicitly saying that there is a financial risk. But I think the Chinese government is paying heightened attention to any systemic type of risk. That's why the policy is getting more dubbish but in my opinion not enough. If you look at the policy, there are many constraints. So, on top of the typical inflation and growth objectives, they also need to pay attention to, for example, not creating a resurgence of the housing bubble or speculation. Not creating a financial bubble. Not to weaken the Chinese too much in the face of a strong dollar. So there are many constraints. So that is the reason so far the policy eased but not enough probably. >> We have a question that we will get to about the people of China the People's Bank of China rather why they are not hikes. We need to crush inflation will highly… The People's Bank of China can kind of go dramatically on their own path. Can they stay on that path much longer if the rest of the world is doing something else? > I think something has to give. For the People's Bank of China this year, they effectively lowered the lending costs by about 40 or 50 basis points where is all of the, you know the rest of the world is actually a very steep hiking path. It's because of the reason I mentioned, not to weaken the currency too much. Not to create a resurgence in the housing speculation. The government, right now, any easing is in a very measured pace. But, things are gradually changing. For example, when the Fed hiked the rate, it was probably down the road, it will weaken. We are already seeing many signs that the growth is weakening. If you look for example at TMI from the developed economy, it is going from about about 50 and in the coming months will go below. External demand from the developed economy is also gradually going down. So for Chinese banks, the Chinese central bank, this is probably good news because if the external demand is on a decline and a collapse, then they have more reasons to ultimately go to the more dubbish stance. >> Interesting stuff. Let's get to a question off the platform of you are asking how concerned you are about a slowdown in China and how it could impact commodity demand? Obviously China a large buyer of commodities. >> Right, so actually it is definitely impacted by COVID. So if you look at the, some of the major commodity demand, for example the crude oil imports into China is down roughly 4 to 5%. Same thing for others. But generally, compared to other statistics you see, for example the one I mentioned for the real estate sector, the magnitude of the downward movement is actually not that much. Broadly speaking, the commodity demand from China is stable. And on that, I actually want to mention that China, right now, going through COVID destruction is probably a good thing, counterintuitively for the rest of the world. Although it creates some supply-chain bottlenecks, but on the other hand it also reduces a lot of demand for many of the commodities. So if China actually reopens, it will be a very powerful reef inflationary force. As you can imagine. That will only make the inflammation rather inflation recede and will probably push Federal Reserve as well as other developed central banks to stay on hawkish paths for longer which is not good news for the market. >> An excellent point to raise as well. How quickly if we did see Chinese demand turn from commodities, how quickly could that turn happen? Are we talking days or weeks or months? >> That really hinges on when there will be a shift from the zero COVID policy or when the policy easing will be more forceful. Both right now, we are not seeing that. Probably we are going to have to wait for Congress to see any major changes. >> All right. As always at home make sure you do your own research before making any investment decisions. We will get back to your questions with Haining Zha with questions on the Chinese economy in just a moment's time. A reminder that you can get in touch with us in a moment's time anytime. Do you have a question about investing or what is driving the markets? Send it to us here at MoneyTalk Live. You can send us your questions two ways: you can send us an email anytime by emailing moneytalklive@td.com or you can use the question box at the bottom of the screen right here on WebBroker. Just type in your question and hit "send". We will see of one of our guests can get you the answer you need right here at MoneyTalk Live. A very interesting day on the markets. Let's check in right here with the TSX Composite Index on Bay Street. Of course, 8:30 AM Eastern time this morning with the latest inflation print out of the United States core inflation. Particularly troubling in terms of its upward move. We saw equities under amassed an amount of pressure. Things have definitely turned around. That's in the past hour or so. 18,480, you have the TSX Composite Index up 274 points. Telecom stocks, utilities and financials, right now the mining stocks can't decide where they want to be. Let's check in on Crescent Point Energy. We are seeing firmness in the price of crude today that is feeding into some of the energy players. Nine bucks and $0.79 on your screen for Crescent point up 2.8%. As I said though the mining stocks can't decide where they want to be in the straight. You still have some considerable pressure in some names like Barrick and Kinross. Kinross down a little more than 5%. Telecom getting a bit of a bid today. BCE has definitely had a downward path over the past several weeks. Today though it 58, 26. Up a little more than 3% on the name. South of the border, let's check in on the S&P 500 because of course we did start firmly in negative territory on Wall Street. Turn right on that trade up 46 points right now that brought a read of the American market for a gain of 1 1/3%. A little off the highs of the session and we saw a much different picture than this morning. The NASDAQ of course, the tech heavy . Firmly in negative territory this morning, when a check in on it now. Definitely shifting. Up 1.9%. We are back now with Haining Zha taking your questions about the Chinese economy. Well the trend of the US trying to onshore more production be negative for China? >> Right. That trend is slowly happening but the onshoring only makes sense for a selective category of products. It doesn't make sense for everything. Typically it's for projects with high value for exam bell example semiconductor. Also products related to security and safety. For example healthcare. Many other types of daily use products, actually it doesn't make economic sense. Also, I want to mention that onshoring is a very very slow process and typically at last for several years. You know, let's take Apple for example. 90% of the assembly production was done in China. So right now, Apple is trying to shift the assembly to some of the other countries. For example India. But that ship is very slow. Given that you want to do very good quality control and maintain efficiency. Probably you have to building a new factory and make new investments. So it's a very slow process. Take another US company for example. Tesla. Tesla has a large factory in Shanghai. So that factory probably accounts for 40% of the total production capacity today. So actually, in China, Tesla is still looking to expand the factory rather than shifted away elsewhere. Because it's the one that has the highest efficiency. >> I want to ask you about that. We talk about onshoring and re-shoring but as you mentioned, Tesla putting a production facility in China… It is the world's second-largest economy. A huge market. I guess the benefit there for Tesla is making the cars a little closer to the end market? >> That's exactly the rationale. If you look at car demand, annual car demand from China, it's roughly at more than 20 million vehicles per year. In comparison before COVID, the US annual demand is roughly at 17 million. So China is the world's largest auto market. So any auto maker definitely wants to get closer to their end consumer. Not to mention. Those are some of the characteristics that they would like to see. >> Gets the next question now. This is about the tech sector. Big firms in China. What is your firm and view of big firms like Ali Baba or Tencent? >> I did earlier this year and last year as well, the Chinese tech sector dramatically underperformed. There is a potential perception of delisting risk. For example Ali Baba is… That risk following the CSR C and USS EC that risk is partially released. Another risk is the government regulation on the tech sector. And that, we are also seeing running to an end. For example, the internal as well as external investigation into Ali Baba and financial. That is largely finished. His so this is the second reason. The third reason is the core business of some of these tech companies. During the COVID lockdown, also suffered pretty heavy losses. For example, if you look at Ali Baba, their core retail segment came for a large percentage of the revenue. You know. In the face of weak retail sales. It's not performing well. For Tencent, the advertising and marketing spending is also reduced given the uncertain economic environment. Looking forward, (audio cut) one day of the Chinese economy reopens, there are more policies support from the Chinese government, those negative factors can turn into positive. Lastly, if you look at valuation, they are trading at a decade ago for many of these high-quality tech names. So from a long perspective, still on those Chinese companies. >> Interesting stuff. Let's get to another question. We briefly mentioned semiconductors. A few are asking if we can get your view on the US government targeting chip exports to China. They seem to be in a bit of a battle right now between Washington and Beijing in this space. What kind of impact about have? >> Right. It has been our view that the tech war probably will continue for the next little while. This measure is simply a reflection of that. So specifically, in this new regulation, so, for any equipment that can be used to produce advanced note semiconductors, it is not allowed to be exported to China. Unless you get approval from the US government. Also the US persons cannot, not allowed to facilitate a or provide service to the Chinese semiconductor companies. So this definitely will be a huge hit for Chinese government. And for the sector that wants to have the breakthroughs to the latest technology. >> Interesting stuff. We will get back to your questions with Haining Zha and the Chinese economy. A reminder that you can get in touch with us at any time and do your own research before making investment decisions. Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind so send us your questions. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below this screen right here on WebBroker. Just writing your question and hit "send". We'll see if one of our guests can get you the answer you need right here at MoneyTalk Live. Another red-hot US inflation marked by the biggest increase in core prices since 1982. Joining us now for more as Anthony Okolie. Let's look at these numbers. The numbers moving off and maybe incurious ways. >> We've seen quite a bit of movement in the market. This CPI report came in really hot. Reinforcing fears that persistent high inflation it might be becoming more entrenched in the US economy. Now, when we take a look at some of the numbers month over month, US inflation was up .4% in September which is worse than August and higher-than-expected. On a year-over-year, slightly below what we saw in August of 8. 3%. Now I brought along a chart which kind of breaks down the twelve-month percentage change in CPI among select categories. This comes from the US Bureau of Labor Statistics. The biggest contributor being rent and owners rent. The housing costs rose the most since the early 1980s. That's because the market continues to push up rental rates. The housing markets of course make up the largest share of the overall and the core indices. Now, take a look at some other categories. Food prices also continue to increase last month. It was a .8% month over month. Also increasing in the chart shows a hefty 11% year-over-year. Meanwhile, energy prices default back rather they did fall back thanks to a pullback in gas prices. But the fallen gas prices was partially offset by things like rising electricity and higher natural gas prices. Now, after we removed the volatile food and energy items, core inflation, this is a big one we've talked about as well, it rose up .6% month over month, year-over-year, 6.6%. Again, this is a four decade high report. So that was not good news for the market obviously. There was some good news to report. Core goods prices was flat month over month as prices for things like home furnishings, apparel, recreational goods, used vehicles… Prices all slowed during the month. So again, it was another disappointing report both headline and core figures surprise to the upside. I think what this shows is the CPI report we saw in August was not just a one-shot deal. >> Going forward now, of course, the fight against inflation continuing from the central banks. Which categories do TD economics things will be sort of instrumental to our understanding of whether we are winning the battle are not going forward? And what will the Fed do about this ultimately? >> It ultimately shelter costs. That's what's higher and this will continue to underpin, they think, the strike and service inflation. This, despite the fact that we've seen record I, skyhigh mortgage rates in the United States and the housing market. Showing some cracks. Despite that, TD economics thinks it will take some time for rent and homeownership costs to actually, the slow down to actually be reflected in the CPI data. Now in terms of interest rates, TD economics is calling for a policy rate which could be between 3 to 3 1/4% right now. They are calling for a policy rate of 4 1/2% by early 2023. >> Still some distance to go. Thanks Anthony. >> My pleasure. >> MoneyTalk Live's Anthony Okolie. Back with your questions in just a moment with Haining Zha on China and the economy there, the market there. Let's check on the North American marks right now. First we've seen fortunes from where we started from the training day. The TSX of 260 points of almost 1/2%. Crude prices have firmed. American mentioned benchmark rose just about 89 bucks a barrel about 2% today. A turnaround based on the initial market reaction to what Anthony just told us about. Some of those troubling core measures inflation. The central banks about to win this fight through hiking and borrowing costs. The right now, the markets are firmly in positive territory. Suncor, want to check in on some of the big names in Canada right now. 44, 39. Although the 2 1/2%. The miners still taking a big tumble off the back that inflation report. Your First Quantum Minerals right now just sitting modestly in negative territory. Up about half a percent. Rather down about half a percent. Aritzia came out with a strong report the retailer is up 3.6% right now. South of the border, we had a check on the S&P 500. Still holding in positive territory quite firmly on 50 points, almost one and 1/2%. You were seeing a financials benefit today getting a bid. The energy stocks, a lot of green on the screen south of the border. Even the tech names which have been pretty volatile of a ride this year with central banks being so impressive in terms of hiding and borrowing costs. Yet the NASDAQ right now a little less than 1%. And Walgreens up a bit more than 4%. We are back now with Haining Zha from TD Asset Management. If you want to invest in renewable energy trend in China what's the best way to do this? >> Renewable energy is a very promising energy. It was projected this year that world of solar demand would increase by about 30%. So in-store capacity this year could reach 250«… For China alone, this year capacity can reach 100 GW. It is growing very, very fast. They benefit from several tailwinds. One tailwind is ESG's. So people paying more attention to the environment. Many countries are committed to the carbon neutral in the long run. The second tailwind is what's happening in Europe because of Russia/Ukraine war. The energy prices is skyrocketing. So this actually makes solar look even more attractive because it's cost has been vastly reducing. >> What could be the challenges on this front? You think things are working in solar's favour in China. What could shake it up or trip it up? >> If you look at the performance of many solar companies particularly, Chinese solar companies this year, the performance I would say, is mediocre and their valuation right now is actually looking very reasonable. Most of the high-quality names are below 30 for multiple. So the key reasons for that, there are two headwinds. Number one, earlier this year, US as well as, US launched a trade investigation on products including forced labour. Similarly, Europe also trying to do some investigation around this area. So that is definitely a headwind for many solar companies in China. Another headwind is that earlier this year, the party is… The raw material used to produce solar panels, the price is at a very high point. Which is hurting the demand downstream. The reason for that is that there are first of all, not enough capacity and number two, earlier this year, high temperature causing the energy shortage and, as you know, producing solar particularly the party is very energy intensive process. These two factors are gradually, their impact is reducing. Later this year, in fourth-quarter as well as first-quarter next year, many new capacity for policy will come out. Probably energy shortage is also a short-term problem only. >> All right. Fascinating stuff. Let's get to another question now. Our reviewer saying that stocks have been under pressure around the world. This year. What about Chinese markets? Do you see any value there? >> A lot of value we see. If you look at valuation, you know, the CSI 300, Shanghai which is the Chinese benchmark is at the lower end of historical range. And if you look at lower valuation, you know, one particular market that attract my eyes the Hong Kong market for many equities are distributed. So for the $0.10 index, if you look at valuation, incident all time low. Lower than the global financial crisis. Lower than 1997 Asian financial crisis. So understandably, is caused by the COVID lockdown as well as what's happening in the real estate sector. So, if we see any kind of improvement in the medium term, those low valuations will not persist for very long. >> Imagine a risk thereto that we are sorta facing here, worried about a recession, a pullback in economic activity and what that will mean for equities. We can see right now what this actually means for portfolios going forward. >> Exactly. So that's why many investors, on the sideline looking for potential catalysts, for example the driving shift from the zero COVID policy. >> Fascinating stuff. Haining before we let you go, we're getting ready for some pretty big news and development out of China, what should we be mindful of? Remind us. >> I will say at this point most of the investors are pessimistic and understandably so. a good investor is always looking for opportunity when they see bad things around them. As a long-term investor I will look to potential positive factors in looking for potential positive catalysts. So we are carefully observing that. >> Always a pleasure to have you on the program will be see you again soon. >> Thanks for having you. > Our thanks to Haining Zha, Portfolio Manager at TD Asset Management. Coming up on Friday stay tuned for Bart Melek, Head of Commodities Strategy with TD Securities. Sharing his thoughts on commodities. If you have any questions just email your questions to MoneyTalkLive@td.com. That's all the time we have left for the show today. Thanks for watching and we will see you tomorrow. [music]