New protests in hong kong. No cigar. Shinzo abes Ruling Coalition wins the upper house but has failed a getting a super majority. We will have the results of the reaction. After a volatile week, stocks closed lower on friday amidst news of mounting tensions in the persian gulf. The Federal Reserve will limit a rate cut to a quarter of a point. Sophie we are setting up for a soft start to a busy week. On thursday, we will get south korean gdp numbers, ahead of which we will get export data in about an hours time. We are moving into high gear on the earnings front, with about 200 Japanese Companies reporting this week. Watching asahi. Switching up the board to check in on oil. Persian gulf tensions are extending a rally. Theleen lets check in on first world news. The Hong Kong Government has denounced the actions of protesters who targeted chinas main headquarters in the city as a peaceful mass rally turned violent late sunday evening. Gas asfired tear demonstrators converged on beijings main Liaison Office in hong kong. Hundreds of thousands of people marched through the city and a sixth straight week of antigovernment rallies. The British Government wants the United Nations to intervene in the spat in the gulf and has threatened iran with serious consequences. They are demanding Immediate Release of the tanker. On sunday, state tv and iran showed the tanker import flying the iranian flag. U. S. Showsom the Chinese Investment has collapsed since President Trump entered the white house. Direct investment has fallen from a peak of 46 billion in 2016 to just 5. 5 billion last year. A hardening attitude in washington have helped reverse years of chinese spending and america. The you key u. K. Chancellor resign iftends to Boris Johnson becomes the Prime Minister. Johnson is the clear favorite to win the race when the conservative party results are announced. The former governor of the reserve bank of india is the this brexit is the main reason he does not want to have the bank of england. He says central banking has become more political in recent years. Saysit comes to brexit, he it is best our country has someone who understands the political situation within the country. Paul shinzo abe has won upper house election and is expected. He has fallen short of the super majority that could have pushed through revisions to the constitution. Where does he go now . He campaigned on a platform of raising taxes, taking that valued added tax to 10 . And the Coalition Won the election on that platform. That would not have happened anywhere else in the world. The super get majority because there is a lot of resistance to the changes and a constitution. It requires a two thirds supermajority in the upper house. He also needs a two thirds majority in the lower house. That will be a longerterm goal. He will not be able to seek that. Canvasscan do is support and get more support, a of campaigning to sway the public and lawmakers. It looks like the value added tax will go forward in october. It seems as though the voting public is more concerned about the funding gaps that are in the Pension Funds and how the government will pay for educational reforms. The opposition did campaign on a platform of get rid of any changes to the valued added tax. Paul with the election out of the way, what does this mean for Foreign Policy and trade with soul seoul . There is this big issue with south korea right now, but also the United States. Dialogtrump postponed behind the scenes of a renegotiated trade pact with japan until after the upper hand upper house election. The trump is threatening other tariffs. Perhaps that has been pushed off until now. On south korea, this has escalated. These are colonial era differences between south korea and japan dating back to the early 1900s. The South Koreans are really pushing this with another caller court ruling holding Japanese Companies liable for damages. Thats thehings japanese feel were resolved in the 1965 treaty. But south korean say that does not cover human rights. This is Going Forward to the point where the japanese tried to solicit help from donald trump to resolve these issues and he said he had enough on his plate. This election could back off the public rhetoric from japan. Both leaders have popularity among their constituencies for the hardline stances they have taken on this issue. Abe hasnow that shinzo won the majority in the upper house, perhaps he can back off that rhetoric and get into negotiations behind the scenes. Kathleen that is encouraging. It brings me back to this whole question about the constitutional amendment. How important is it to shinzo abe and in the region . You know how all of these dots connect. Mission in this term or while he is Prime Minister to get this constitutional reform passed. It is a long haul to get there with public support and the lawmakers. One of the latest figures showed it has National Support of only about 30 . The pacifist constitution was basically written by the United States after the war. He wants to legalize selfDefense Forces for japan and the constitution. To do that, he needs a super majority in the upper house and the more powerful lower house. He will need another three years to canvas and build support for that. It will be his mission, but it will be a difficult one. Kathleen it is such a turbulent time in the world in terms of geopolitics and so many things we have not seen for a while. We will get more reaction to that upper house election later this hour, including the chairman of the u. S. Chamber of commerce. Moving on to another very big story. Launching a nasdaq style tech board in shanghai. It has been dubbed star market. China hopes it can bring big tex listings back home. You have been watching the evolution of this for so long. What can we realistically expect . It was announced back in xi ander by president they have quickly put this process together. You will get 25 companies that will start trading on the star market later today. They have been heavily oversubscribed. In terms of the prices to earnings, 53 times on average versus what you see on the other boards, the unofficial cap of 23 times. A lot of interest from domestic investigators investors. The main luer ours the chart hange in rules to allow some of these smaller Tech Companies to list to get the capital they need. There will be removal of cap surround the gains that can be made in the first day. From chinas official perspective, this is about trying to campy complete. Back some chinese Tech Companies and ensure they get the capital they need. Tell us about the new rules of the exchange. Aroundere are the rules the listings and pricings. The caps on the price limits have been removed. Trading,rst day of first aid gains caps off been removed. And then there is the process around whether or not these companies they to be profitable. Those demands are now far less onerous. The paperwork has been limited for these companies. It is an easier process for them. Their concerns from some that this could lead to risks in the market. Others point out that they may see a liquidity squeeze among stocks in china. There are a number of things to watch for. Whether in a firstday gains can be exchanged sustained. They will be hoping that this star board in shanghai does better. Kathleen it has a catchy name. Who would not want to invest with the star board . Paul our china correspondent in beijing. We will keep an eye on that. Hong kong police fired tear gas again as clashes broke out amidst more mass protests. Demonstrators filled the streets for the sixth straight week. Next, we will get investment tips from a money manager whose fund is in the top 13 of its class over the last year. This is bloomberg. Geopolitics and the trade wars will weigh on stocks as we enter a new week. Our next guest says there may be opportunities amongst all those challenges. You for joining us today. Environment, all of the uncertainties we just described, what do you like . We think mexican equities look really interesting. A combination of negative sentiment from the resignation of the finance minister. Also the problems with pemex. That is leading to interesting opportunities that we see. Banks and Telecom Companies in mexico. The other area where we are increasing our exposure is some names in china that have been affected by the trade war sentiment. Are in those companies the financial space, oil and gas, health care. It is very much been affected by regulatory changes. Paul you also say you seek increased exposure to chinese tech. Interest in this star board that is launching later today . That is a timely and interesting question. One of the areas not focused on is the emphasis on research and development for some of these names. I think there is hope and expectation on the Stock Exchange that many of these companies will engage in r d. For longterm investors, the will bekey litmus test if these companies can successfully convert that into profits. What is the efficacy . Kathleen there is an interesting argument, many investors see growth and value as binary and mutually exclusive. Your country and view is that it is possible, especially in emerging markets in asia, to build a value portfolio with quality stocks that are undervalued. Explain that strategy. Investors looked at value managers as just buying low quality, companies that are going through restructuring. These tend to be in the cyclical sectors of financials, industrials, and basic materials. When we look at value investing, we are looking at it from a more holistic picture. Of the highome risks, we are still able to find attractive companies that are trading at a significant discount. These dont have to be in the cyclical sector. They can be growth year type companies, quality companies. There is also a pretty big segment of yield oriented companies. All of the money that is going into passive and some of the core quality growth names, there are a lot of smaller Midcap Companies that have been left behind in the emerging markets. Example. Give us an where will we be looking for the small and midcaps . Who looks good right now . With all the attention that has been given to china, we feel that a lot of areas in Southeast Asia are overlooked. Ourof the areas we like fund the structures in thailand that own it telecom assets. Those companies are paying up to a 10 dividend yield. Toy also have the ability obtain more assets. Would be i. T. E outsourcing companies in china that are actually servicing the likes of huawei. A lot of these companies have been affected. That is a longerterm opportunity because of the amount of business i comes from huawei will continue to grow. It looks like you have way to findesting these things. I hope youll come back and give us more of these interesting ideas we have not seen. You can get a roundup of the stories you need to know to get your day going in todays addition to daybreak. It is available on mobile. Customize your settings so you only get the industries and assets you really care about. This is bloomberg. Kathleen the Chinese Government office in hong kong has condemned what it calls a siege of the building by prodemocracy protesters. Police fired to guess late sunday night to disperse the group that had targeted the office after a peaceful mass march had filled the streets. Us why this office is such an important target . You have to think about what this offices. The best way to describe what it is is it is the official office of the Chinese Communist party here in hong kong. Embassy thatike an is located in another city. That embassy becomes sovereign ground. Located in the western part of hong kong. It is kind of a workingclass, youdential district where dont see a lot of international businessman. You dont see those big financiers Walking Around in this area. Over here, closely you can see where the office itself has been attacked by graffiti artists. That graffiti has been covered over in thick black plastic. On the other side of the office, there is an emblem of the Chinese Communist party that has been defaced. I am telling you all of this to give you a idea of why the government decided it needed to do spurs these protesters. The government said was these protesters were infringing on the sovereign rights of china. That was the key thing. If you can imagine an american inassy located somewhere asia which had been attacked by protesters, you would expect the government to come in and disperse these protesters and stop them from making any attacks. Paul we also saw separate clashes in a hong kong district much closer to the chinese border. What happened there . This is a sign that shows this entire protest movement is beginning to get pretty nasty. Night was anast organized protest. The men who were doing the attacking of people dressed in black or who looks like protesters were all wearing white shirts. It indicated that they were going to attack anyone who looks like a protester. Of hongresidential area kong, when protesters were returning, they found themselves under attack in the metro system. This is looked upon as spontaneous. The risk is as it becomes an betweenpitched battle protesters and people who feel they want to support the government. Paul that was our reporter in hong kong. Lets get a quick check of the latest business flash headlines. Standard china may ask the ceo to take a pay cut. The board is in discussion with shareholders amid pressure about the banks compensation policy. Pension agreements is unsure. Nissan is forgoing the suv and betting big on its the for future sales growth. They are betting that new ecoconscious Young Drivers will spend less on transport. That means traditional sedans will be more popular than heavier suvs. On then up next, taking tariffs. Some chinese firms are tried to get exemptions for buying u. S. Are your cultural goods. We will assess their chances. We will go to washington for the latest on that story. We will also be taking a look at the markets in asia and around the world. This is bloomberg. Hey im bill slowsky jr. , i live on my own now ive got xfinity, because i like to live life in the fast lane. Unlike my parents. You rambling about xfinity again . Youre so cute when you get excited. Anyways. Ive got their app right here, i can troubleshoot. I can schedule a time for them to call me back, its great you have our number programmed in . Ya i dont even know your phone anymore. Excuse me . what . I dont know your phone number. Aw well. He doesnt know our phone number you have our fax number, obviously. Todays xfinity service. Simple. Easy. Awesome. Ill pass. Tom this is daybreak asia. Chinas new nasdaq star board debuts a year after presenting changing being discussed at a year ago. The star board is the latest attempt to avoid Major Companies like alibaba or tencent from listing abroad. 25 firms will begin trading later monday. The board is a testing ground for regulators who have eased rules on valuations and firstday price limit. The japanese Prime Minister has claimed victory in the upper house elections but is short of the socalled super majority that would allow him to push through a revised constitution. Got at least party 69 out of 124 seats on offer, onping Prime Minister abe course to be the longestserving leader but is short of the majority needed to send constitutional changes to referendum. British airways is continuing to hold flights halt flights to cairo as part of a warning about aviation in egypt. The carrier said it has reviewed security arrangements and will never operate a flight unless it is safe. Lufthansa also suspended flights but has resumed services. Cairo is playing down any threats, saying there is no reason for halting flights. The latest opinion poll in the u. S. States that will hold primaries for the caucus votes puts joe biden ahead of the field in the race to challenge President Trump next year. The survey gives the former vice ofsident 25 support ahead elizabeth warren, harris and bernie sanders. Kamala harris and bernie sanders. No other candidate received doubledigit support. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am tom mackenzie. This is bloomberg. Kathleen we are setting up for a busy start to the week. Lets look at what are the themes at play. Behie earnings in asia will a key driver as we will hear from Different Industries that offer insight into how companies are grappling with challenges and analysts take a somber view on profits. South korea today we have results from Hyundai Motor which will be expected to struggle to its targets as south Korean Companies profits have been diminishing. Profit estimates for the next 12 months have been cut by 31 compared to last year with japan workers adding to headwinds from slowing Global Growth and the u. S. China trade war. As for japan, it has been well telegraphed going into the season, expectations are low. Cuts below 5 and above next year, falling earnings estimates, it is a switch to make japanese stocks make look expensive. Paul lets get more on what we should be watching as trading gets underway with local markets editor adam haigh. Much of the fed excitement has aided but in terms of medication, missteps towards the end of last week. Adam it is a bit of a roller coaster of a roundtrip because you had the initial flurry of dovish commentary from clara. At the new york fed John Williams as well. Many people in the markets were pushed towards a solid view on the fact the fed would deliver 50 basis points worth of cuts at next weeks meeting. During the course of friday most of it ended up being wound back. We still have not really played out a lot of it in many asian markets. You can see on the gtv library how much of a swing you saw. The friday session in asia was good for equities. Still in the 50 basis point thinking at that point. During the recession the u. S. Session, equities came off a bit as people it back to a single. 5 basis point cut in expectations. You have got that but also the and geopolitical tensions with what has happened in the oil markets. It has been those two themes dominating at the moment. Now we are in the blackout timeframe, no more fed speakers, which allows people to get back to fundamentals and whether or not some of the downgrades through earnings numbers, as we get into the rampup in earnings , will be enough for people to say yes, we are willing to pay these hefty valuations on some parts of the market. People have bid up the stoxx significantly. It will be interesting as we wait and see from some of these Company Fundamentals what their outlook is. That is the focus for the rest of the week. Kathleen it will feed into the sense that the market has more to run, people have been cautious, but the price of downside continues to rise for stocks. Tell us about one firm that says dont worry, hold tight, have your convictions, hold your stocks, and do nothing. Why . Adam you are right, because the debate is whether you want to put more risk on at this point. Valuation is looking pretty hefty in some areas but that is with a lower discount rate being implied by the bond markets the next six to 12 markets. What a lot of people are doing is little. That might make sense. It is a formula that is working. Ell for equities and especially for the ceo in new york, who is really not making any big moves and changes at portfolio we look portfolio. We look at next week, the outlook is still cloudy on the Monetary Policy side but also on , with respect to Earnings Growth and how the economy is going to play out as the fed gets in to the easing cycle. Moment tong at the take a bit of risk off the table. The question is how far you want to go. Do you want to risk missing out on further equity upside if things get grind higher, we lose the Monetary Policy there are a lot of people on the street dialing back and getting cautious. Certainly for the folks at alger, they say dont get to cautious because you might miss out on the upside. Paul thanks for joining us. You can check out our gdb library gtv library for the church we have been talking about. They are on the bloomberg terminal. Kathleen lets move on to President Trump putting a spotlight on china not buying enough u. S. Farm products. Seems there is movement on that front so we will move down to ros krasny joining us from washington with the latest on this story. What steps are being taken, will they make a difference . Ros it seems like something is on the move in terms of u. S. China trade and china buying more goods. One of the sticking points, a lot of u. S. Farm products are subject to quite high import duties going in to china. There has been talk about u. S. Tariffs on china. This is the shoe on the other foot. Tariffsk faces high going into china which importers would like to see rolled back before they make purchases because they are upwards of 60 , crippling. At the same time, President Trump has been job owning china to buy more goods. There have been calls with key players from the trade see her trade sphere, so something is breaking up. Pretty interesting meeting this week at the White House Monday with Tech Companies having into talk to officials about huawei and how to handle that. All in all looks like something is happening but it could be pressure would rollback tariffs before any big purchases can be made. High innsions remain the gulf after iran seized a british oil tanker. Where do things stand now . , whichoks like the u. K. Is in the middle of this the whole weekend, is really looking for ways to lower tensions. They talked about deescalation today. The u. K. Defense minister. Seems like irans grasp remains focused on the u. S. , and u. K. Ships are a little bit of Collateral Damage or interference in this process. Irans foreign minister tweeted today about the u. S. And its economic terrorism, what he described as economic terrorism. There is no question u. S. Sanctions have crippled the iranian economy and its exports. In the u. K. Tomorrow, theresa may, one of her final acts as Prime Minister, will lead an emergency meeting on both security. We will see if anything evolves. Eventsn one of the big of this week, special Counsel Robert Mueller will testify on capitol hill. We know what i hot potato it is. What can we expect . A hot potato it is. What can we expect . Ros democrats want this hearing to bring new pressure on the administration and possibly lead to an increase in public support for moving ahead with impeachment. Not all democrats want that, some do. Most americans against impeachment proceedings at the moment, and we also feel like Robert Mueller is going to be a reluctant witness. Even if he sticks to the content of the report, there is a sense among democrats that Many Americans skipped the book but now they can see the movie. They will try to direct Robert Mueller to talk specifically about page 238 or this incident that happened at trump tower, very specific instances that will make their point. They have been practicing, having mock hearings and all kinds of preparation. It will be a fivehour hearing. Official washington and most of the country will be riveted by it. , thank you fory joining us. In a moment shinzo abe wno but not the seats needed to revise the constitution. Will be live next. This is bloomberg. Paul this is daybreak asia. I am paul allen. Kathleen i am Kathleen Hays. Japanese Prime Minister shinzo abe claims victory in the upper house elections but falls short of a Super Authority to let him push for his revised constitution. Stephen engle is in tokyo. Shinzo abe is on track to be the longest serving Prime Minister. Super majority or not, he is in a strong position. Stephen that is right. Again, nearlydate seven years in power as prime electionand five victories, National Election victories in a row. He has some strength but didnt get the super majority in the upper house that would enable him eventually to push for the National Referendum on a change to the pacifist institution. Lets get more reaction with the American Chamber you have been in the diplomatic space, and j. P. S. Ambassador, morgan chairman. What is your take on the Election Results . Not a super majority. I dont know if your audience can see, but it is hazy in tokyo and it is a metaphor the results of the election because they provide a mixed message. On one hand the Prime Minister won a solid majority and will continue in power for the for pursue hisure to agenda. But at the same time, he did not win the super majority he had been hoping for which would have permitted him to go after his dream of amending the constitution. We have that kind of mixed results today. Stephen what is next for shinzo abe . Abenomics has had mixed results. We are not near the 2 inflation target. They will have a tax increase in october. Should he immediately called a snap election in the lower house . He has a couple of years to do that. They had the opportunity to do that at the same time as the upper house election and chose not to exercise that option. They considered it, but my impression was perhaps the polls didnt really encourage them to think that was a surefire win. They decided to postpone that event. At this point, i guess will be looking at them moving forward with the tax increase in the fall. We will see how the economy reacts to that. Depending on the results then, they may have a time frame when they could consider it. You have the olympics coming up next summer, there will be a lot of attention focused on preparations for that in a way that might discourage people from saying, lets get involved. We will have stability. Stephen they campaigned on raising taxes in october. I lived here when they went from 3 to 5 vat. There was recession, 5 to 8 , there was a dip in the economy. Beendy at 8 they have not spending ahead of this great rise to 10. Hasnt been any signal so far from the economy that it has a stimulative effect ahead of time or will necessarily have that depressing effect afterwards. The government is preparing by setting up various measures that would ease the burdens for parts of the population when and if they do increase the taxes. Chances are a lot of that impact would be offset. A lot rides on what the rest of the Global Economy is doing at that point. If trade tensions continue globally, the china market continues to be a place where japan is finding great difficulty because it is their largest export market these days, it can have a negative impact on the economy overall, which a tax increase would exacerbate. Stephen what do you expect next now the election is over . The trump negotiations have been postponed until after the election, hard for shinzo abe to give concessions to the u. S. And agricultural access during an election campaign. Do you expect him to negotiate and open up the market to avoid auto tariffs . I expect him to be negotiating seriously with the u. S. They agreed they would hold off on reaching the climax in these negotiations until after the elections. Now they are over and i know negotiations will be going in earnest in the days ahead. Having said that, looking at the Election Results, one thing you can note is they didnt actually do that well in the northern part of honshu, which is an area of the country that has been most upset by the compromises the Prime Minister made in order to get japan into tpp which includes a number of agricultural concessions the asking on aalso bilateral basis from japan. The Prime Minister will be watching that result in trying to move forward carefully to demonstrate whatever compromises he has to do with the u. S. Are reciprocated in some fashion by the u. S. Stephen what is something that they want to see in the trade deal . We would like to see a comprehensive deal that includes not only hot button issues like agriculture and automobiles but also future oriented areas of the economy, particularly in the Digital Economy space where u. S. Companies have been very successful in the japanese market and where we are contributing a substantial portion to the balance of trade president isthe concerned about. We think the pharmaceutical issue needs to be addressed. Japan is lowering the prices for pharmaceuticals in japan, the most innovative ones. American companies produce a significant portion of those. It will bite into our trade balance unless we can get that problem addressed. Stephen [indiscernible] of japan does it was risk undermining the relationship . The negotiation has to produce a result the japanese can view as winwin. From our perspective, it would mean the results reinforces in the minds of the japanese public the Prime Minister has been on the right course with his overall structure or Reform Program for the economy. There is good Growth Potential here in japan for the future. If the Prime Minister sticks with his program and moves forward with abenomics and continues to address demographic challenges japan faces, the prospect actually are pretty bright. In trade negotiations, the japanese have to see they are getting something as they give up something. Stephen how concerned are you by the flareup of these tensions with south korea . There are concrete actions being taken by both nations and the rhetoric is amped up because popularity with voting populations for the tough stances. Maybe abe can pull back . This is concerning. From our perspective we want the two sides, japan and south korea, to sit down and talk through a result issues. Longstanding, it wont happen quickly but they need to take the first steps from both sides to move off square one and get back to dialogue. Timing, theat amulet goes by as you talk about the most critical issues. Thank you so much for your time. We will send it back to you. More coverage from the streets of tokyo in front of the dais behind me. Paul Stephen Engle there with christopher lefler. Forget, tv you can watch us live and you can catch up on past interviews as well as dive into any of the securities or functions we talk about her you can become part of the talk about. You can become part of the conversation. This is for subscribers only. Check it out at tv. This is bloomberg. Kathleen lets get to breaking. Ews on south koreas economy very important exports for the first 20 days of the month of july. 13. 6 seeing they fell yearoveryear. The prior month was down 10 . Exports in this export dependent country continue to suffer. Imports are down further, reflecting a slowdown in south korean demand for businesses who are exporting less, dont need to import as many commodities and parts in order to produce whatever they are producing. Largest is the 11th largest economy and forth biggest exporter. Sophie toback to preview the market open in australia, japan interesting to see these numbers area numbers. Sophie we will see how that plays out in markets. Futures pointing lower in seoul, sydney and tokyo. On earnings. Focus big names in japan as well as in korea. Investors will have plenty of news lines including the products in hong kong, tensions in the middle east, and crude is continuing to rally. Abes election will be in focus. A sales tax increase is looking very likely, which Mark Cranfield recommends good wash upside prospects for japanese stocks. Conferring aev sale of its Australian Unit to asahi. Willapanese barrick are fund that beer maker will fund that with bonds and loans. The deal could have a negative impact on asahi shares because of dilution an increase in debt. But the multiple is looking pricey given the australian market. Paul lets get a quick check of business flash headlines. Antihot airways and the indian restarted condition on jet airways. The report is examining funding requirements to pay creditors and bring the airlines back to the skies. Last months talks were broken down. The Flagship Fund has posted one of its worst performances in 20 years. Financial times said Pure Alpha Fund lost 4. 9 in the first several months of 2019 but recovered this month. This is after a strong 2018 for pure alpha. Anderson, axt, anna strategist at j. P. Morgan Asset Management, will join us. This is bloomberg. Paul im paul allen in sydney. Asias major markets are about to open for trade. Kathleen good evening from bloombergs Global Headquarters in new york. Im Kathleen Hays. Sophie im Sophie Kamaruddin in hong kong. Welcome to daybreak asia. Paul our top stories this monday, taking stock. Shanghais new tech board debuts after the next tencent or alibaba to go at home, not up not abroad. Kathleen hong kong street protests take a new turn. Demonstrators target political headquarters in the city. Im Stephen Engle in tokyo. Shinzo abe wins the upper house. There is no super majority. We will have the results and the reaction. Kathleen theres a lot to look at the action. We have fed confusion, what is ringing through hardest in asia right now . Sophie taking a look at earnings, in focus, kicking off a big week for japan. 200 companies are to report. We have the nikkei and topics under traffic under pressure. The yen, nudging lower in the wake of shinzo abes election victory. The yen, 108. They expect trade talks with the u. S. Gdb traders will look to the boj fund for cues as well. Flipping the board to check on mood and south korea, the kospi off 2 10 of 1 after capping a second loss on friday. Headwinds gathering for companies in the economy which prompted them to cut rates. We will get more insight to earnings. He and a today. Switching it up to sydney, checking in on the asset asx 200. The biggest gain in a month. We are watching Oil Producers for the rally in crude over the persian gulf. Brent gaining ground. Paul thanks very much. Lets check in on first word news with tom mackenzie. Tom thank you the chinese and Hong Kong Governments have to announce to the actions of investors who targeted chinas main headquarters, as a peaceful mass rally turned violent late sunday evening. Police fired tear grass as demonstrators confirmed converged. Hundreds of thousands of people marched through the city in a sixth straight week of antigovernment rallies. TheBritish Government wants United Nations to intervene in the spot and the gulf. And has threatened iran with what its it calls serious consequences. London is demanding the release of the tanker and is advising u. K. Shipping of the increased threat and the strait of hormuz. On sunday, iran showed the tanker import, flying the iranian flag. The u. K. Chancellor says he intends to resign on wednesday if Boris Johnson becomes the next Prime Minister. Johnson is the clear favorite to win the race against foreign secretary jeremy hunt when the conservative party results are announced tuesday. Hammond says he will not be able to accept johnsons demand as members of his government must accept a no deal brexit. If Boris Johnson becomes the next Prime Minister, i understand his conditions for serving in his government would include accepting a no deal exit on the 31st of october. That is not something i could ever sign up to. It is very important a Prime Minister is able to have a chancellor who was aligned with him in terms of policy. Tom the former governor of the reserve bank of india says brexit is the main reason he is not interested in succeeding mark carney, the bank of england. He said the central banking has become more political in recent years and when it comes to brexit, it is best the country has someone who understands the political situation within that country. Ukraines comedian turned president. He has dominated the countrys latest parliamentary ballot with exit polls showing his Party Winning a record of 44 of the vote. And aprilnto power despite having no political experience, capitalizing on fixing the economy and end of the conflict with russian backed separatists in the east. Global news, 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. Im tom mackenzie. This is bloomberg. Kathleen thanks so much. Shinzo abe has won japans upper house election as expected. He has fallen short of a super majority that would let him push through revisions to the constitution. Our correspondent Stephen Engle is in tokyo. Take it away, what is next, what is important . What should we be watching as abe gets ready for his big next step, whatever it may be . Stephen he has a lot to do. He did not win the super majority to push for the changes. But he is going to head the most likely with the increase from a person a percent to 10 . The voters pretty much said we realize about the pension fund needs to cap the spending cap needs to plug be plugged. We need to find these Educational Programs like free kindergarten across japan. The japanese public gets that. They will accept for the most part an 8 to 10 increase in the value added tax. Going forward, they must push forward the reforms that will get people to spend. 4, and five. The inflation is nowhere near the 2 target. People are holding on to their yen. He needs to get their reform and more cash into the pockets of workers. Right now, he could call another snap election anytime within the next two years for the lower house. The more powerful lower house. They could have done a dual election with the upper house on lower house, but they decided not to because shinzo abes super majority in the lower house is razor thin, 67 . They need two thirds majority for the super majority. They need that super majority in upper and lower house. It was too much to risk to have a double election. They could have lost the super majority in the lower house and not obtained in the upper house. The next step politically could be a snap election, when he feels the political winds has changed in his favor on the reform package. Kathleen why is that so important to shinzo abe . Tourism has increased in japan, labor markets are tight. That is why i think you are right, if he gets a super majority, then he will use it for this project. Why does it mean so much to him and potentially japan . Are a lot ofe geopolitical concerns in the world and in this region with north korea. They have stopped rattling their sabers but it is still a threat. All of those missile tests went over japanese territory. That is an issue. There is the rise militarily of china. There are problems in the strait of hormuz that shinzo abe commented yesterday saying they reviewing whether they will take part in the coalition to combat those tensions with iran in the strait of hormuz. Concerns thatt of the Japanese Selfdefense forces. Donald trump has been saying japan needs to take bigger a bigger role to protect itself. The security umbrella that the u. S. Provides to japan does not necessarily come for free. There is that always hanging over japan. He is in a tricky bind. Most of the public here in japan does not want a change to the constitution. Shinzo abe needs to do the job and say we are going to put in this section three, article nine of the constitution that was written by the United States postwar. That would, in his estimation, legalize the soft Defense Force within the constitution. That is the job he has to sell to the japanese people, and lawmakers. Paul how about Foreign Relations closer to home . We have had a rather dreadful export numbers for the first 20 days of july out of south korea. Shinzo abe does have motivation to have a talk to south korea and end this spat . He has perhaps now that won a mandate, he can back off on the rhetoric. Key and moon jaein have gained popularity and poll numbers by taking hardline stances on a on eachn the stances other that has significant dating back to the cologne the colonial era when japan occupied the korean peninsula, and South Koreans want the Japanese Companies to pay compensation for those wartime crimes. Japan says that was all settled in the 1965 treaty. That doeskorea says not cover human rights issues. It is a tricky area and era. The japanese have most recently imposed these export restrictions on key components that go into south korean tech exports like phones, same some phones. It is samsung phones. It is ramping up. Some of the chitchat is now that abe has won the mandate, perhaps he can back off on pull boosting rhetoric and get to work on finding some sort of agreement, at least diplomatic bandage with south korea. Our chiefthat is north asia correspondent Stephen Engle. Thank you so much. Our next guest says it the rest of july, investors must contend with two things. An uncertain earnings season and centralbank policy as European Central bank and the Federal Reserve meet. Hannah anderson is Global Market strategist with jp morgan Asset Management and she joins us now from hong kong. Lets start with the fed. The markets have been very worked up about getting a 50 basis point cut for the fed on july 31, especially after neel kashkari, a day or two after the meeting, said he was in favor of a 50 basis point cut. That is overdoing it. Can the markets be satisfied fed can bonds rally, if the does the expected 25 basis cut . Hannah i think the size of the cut has been changing day to day. Investors have gotten excited about the fact that the fed may cut at all, which pro which would provide greater liquidity and justify the current pes that markets are trading around. If the fed cuts, even if it is to what by the 25 basis points, which is a dramatic cut, i think investors will be pretty excited by that. Kathleen people were pricing in a couple more this year. In the recent note you sent us, i like your reference to a blue 2020, which in could see Central Banks cutting if inflation remains low, even if the economy is doing all right. Like a 5 chance or do you think that could occur next year . That would be an interesting situation for investors. Hannah to put yourself in central bankers shoes, for the fed in particular, they are looking at employment and inflation. Employment markets hold up into the end of the year which the fed may be trying to ensure by juicing more economic activity, inflation remains well controlled by these external forces that are Holding Prices down as well as the change of inflation. That could justify running the economy hotter for longer to try and generate price growth. I dont think that is likely to be the case in 2020, simply uncertainties, particularly political uncertainties continue, i think we will see a continued to drag on the investment cycle and a drag on earnings as we get later and later into cycle. For the fed, they are trying to forestall any actual slowdown in the overall data picture by cutting rates or looking to cut rates sometime in the rest of the year. If they do it and investors buy that this is a proactive rather than reactive rate cut, i think we could see this expansion go along a little longer than we would have expected. Which for the first half of 2020, starts to look a little more optimistic. Paul just as you were talking, we did see a chart of the u. S. 10 year. That is heading down. Jp morgan sees the u. S. Treasury yields hitting zero and the next few years which would obviously spell some sort of catastrophe. The jp morgan house view is that clouds are clearing over financial markets. Can you square that circle for us . Hannah i think in the short term, then ask three months, we could see further low in the 10 year. Simply as investors pricing these uncertainties. Further fed easing draws more investors into the u. S. Market. Therefore, you could see further depreciation in tenured prices. However, for yields to fall all the way to zero or two fall lower, we would need a much further weakening in the u. S. Economy. A further weakening in the Global Economy for investors anxiety to rise to the point they would push 10 year yields lower. For that to happen, i dont think it is out of the realm of possibility. It is a question of time horizon. And how Investor Sentiment is going to evolve in the next six or so months to try and price out what the end of the cycle will look like. Paul lets turn to equities if we can. Just wondering to what extent do you see buybacks propping up certain secondquarter earnings . Hannah so far, we have seen a relatively tepid apace of buybacks compared to earlier quarters. See thate will continue. Particularly as all of this uncertainty we have just been talking about that we are seeing play out and bond markets does affect corporate sentiment. Between that and a slowdown in the investment cycle, i do think that Global Investors will have asrely less on buybacks companies have other uses for that cash. Kathleen i have to ask you a question about the launching of the shanghai star board, the newtek board. A lot of hope that it will bring back listings and make more capital available for the small startups. People are wondering if they will get the big fish to come list and how many people will want to give up being able to list and get their investments in in dollars, and hong kong or the u. S. What do you think . Hannah i think it is an unquestionable positive forward step in chinas Financial Development to try to develop some sort of exchange that focuses on these smaller and start her up and more innovative companies. To draw the capital china is looking to, they need to have established a clear Regulatory Framework that investors feel on that boarding in chinas volatile equity markets. I do not think we are there yet. Extends andof law is established and we have clear guidelines of what is acceptable and unacceptable behavior on the corporate and investor side, i do think in the next 10 years or so, this could be a substantial avenue for flows into china. Kathleen extends and is established and we have clear guidelines of thank you so much, hannah anderson, j. P. Morgan Asset Management for covering such a wide range of topics. We will have more on the launch of shanghais star board. Just ahead, hong kong protests turned violent. We will ask where things stand now later this hour. Paul next, we will be live at the shanghai Stock Exchange counting down to the 25 companies on their new tape board. This is bloomberg. Kathleen this is daybreak asia. Im Kathleen Hays in new york. Paul im paul allen in sydney. The big story investors watching today, shang has nasdaq style take board goes online in 19 minutes. It has been dubbed the star markets and will play a role in taking listings back home. Selina wang is at the shanghai Stock Exchange. What can we expect today . I am here the shanghai Stock Exchange. A lot of excitement behind me. There is a board that is showcasing the top innovation that these companies are showcasing. I moments ahead of the Opening Ceremony where 25 companies will be listed out of more than 100 that have applied to be on this tech board. We are expecting a burst of activity when the trade starts. On average, demand for Retail Investors has outstripped supply by 1800 times. There are some concerns from investors that after this huge evaluation rise, there will be a dramatic fall as expectations start to come down. This to huge stakes for succeed because this is promoted by changing king xi jinping. It is significant as china may be cut off by the global tech supply chain, and this causes more impetus for china to build its own Domestic Exchange to incubate these technologies and make sure these companies have enough resources and funding to succeed. Kathleen trying to encourage development of new technology companies, help china move ahead on its goals to become a dominant tech player. What about the rules, how do they facilitate this . I understand one of them is you do not have to have revenues in order to list. Selina there are so many bold changes bold changes that this Stock Exchange will be implementing. These are things the Chinese Government has been thinking about for many years and they are coming to fruition in this exchange. The three main changes are number one, this is going to have a registration listing process which means it will be less cumbersome and faster for these companies to apply. Secondly, it will allow preprofit companies to list. A lot of these new companies are not making money. Now they will have an avenue to list. Thirdly, it will allow dual clash shareholding structures which has been very popular among Tech Startups and entrepreneurs. The goal is to get these Tech Companies to not run away to hong kong or new york like tencent and alibaba but list on domestic. Exchanges in the mainland the government wants. Retail investors to be able to take part in the growth of their homegrown companies. There has never been a shortage of Tech Companies in china. What there has been a lack of is regulatory structure that will allow these companies that are younger with a different financial structure to list. Kathleen thank you so much, have fun at the Opening Ceremony, 20 minutes from now. That is selina wong at the shanghai Stock Exchange looking at that star board launch. So much interest there. What are some of the companies that will debut on this exciting monday . Sophie for watchers of the star board, you will want to keep and i on the 25 names approved at out of more than 100 applications applicants. You can find that on the terminal. We have the first to price its ipo. Want toup the visual, i highlight names. China Railway Signal is the biggest listing of the year in china, making it a good chunk of the funds rate by the first batch. It came in at 5. 4 billion. Also a spin off listing listing, how regulators are willing to do that. China railway has the lowest multiple of the board at 5. 58 compared to the highest which is commanded by advanced micro fabrication. I want to highlight eighthn established highlight an established list maker chipmaker. Analysts see huge demand for the star board because of the huge number of Tech Startups as selena pointed out. There is no dearth of that when it comes to the mainland. Beijing alonef has nearly 150 thousand tech firms where the revenue i 2020 is seen at more than 291 billion. There could be more to drive small caps on the mainland which as you can see from the chart have outperformed this year. Paul all right, thank you very much. You can get a roundup of the stories you need to know to get your day going in todays edition of daybreak. Bloomberg subscribers can go to dayb on their terminals. It is also available on mobile on the bloomberg anywhere app. You can customize your settings so you can only get news on industries you care about. This is bloomberg. Paul lets get a check of the latest business flash headlines. Standard chart may ask the ceo to take a pay cut according to the financial times. The report says the board is in discussion with shareholders amid pressure over the banks compensation policy. They told the newspaper that shareholder focus on the banks pension arrangements is immature and unhelpful. Kathleen Cathay Pacific has bought hong kongs sole budget carriers to boost market share amid competition from mainland chinese airlines. Hong kong express was owned by hna and says it will continue to stand be a standalone carrier. Full details have not been released but in march, they said they would take in 19 million u. S. Dollars and pay a similar amount of stair of airlines. Forgoing the suv and betting big on the sedan for its future sales growth. Chief is betting the ecoconscious Young Drivers will spend less on transport and that means traditional sedans will be more popular than heavy suvs and people carriers. Kathleen up next, china condemns what it calls radical, beijings Political Office in hong kong. The latest on the citys growing protest coming up next. This is bloomberg. Were the slowskys. We like drip coffee, layovers and waiting on hold. What we dont like is relying on fancy technology for help. Snail mail we were invited to a y2k party. Uh, didnt that happen, like, 20 years ago . Oh, look, karolyn, weve got a mathematician on our hands check it out now you can schedule a callback or reschedule an appointment, even on nights and weekends. Todays xfinity service. Simple. Easy. Awesome. Id rather not. Kathleen we are an hour from the open in hong kong. You can see some downward pressure on the asiapacific index. Lets get to some breaking news. The governor of the r. B. I. Has spoke to us about the india shadow lenders and the Central Banks policies. It was one of his first media interviews since he took the post. What clues did he give us as to policy outlook . Like any central banker, these guys like to keep the cards fairly close to the chest. We have the big deep to see what he was saying about policy. He of the clearest things said was that future action is going to depend on economic data. That is self evident. Every central banker would say that. Says the move to an will lended stance itself to easing. He has done his bit. If you can discern from this interview his likely intention, it is hard to say. The key message she said was there was a need to support demand. Was there was a need to support demand. Overall he does say there are positive signs. Kathleen i guess he has hedge his bets a little bit. So many banks are not entirely cleaned up. That is always lurking in the background when the r. B. I. Is looking at what course it is going to follow. What about the Financial Stability of the r. B. I. . He spoke a lot about that. He said there are signs of fragility in those nonbank lenders. They are worried in their Financial Stability report. If one of these goes bust, that could equate to a broader Ripple Effect across the financial sector. Perhaps the key to the collapse of them major bank. They want to avoid systemic risk. He is keenly watching it. Determined to stem any spread of contagious risk there. Kathleen it was a big get from the asian economic steam. Congratulations. Lets get to the first word news. Chinas new nasdaq star will take the index. It is an attempt to avoid Major Companies from listing abroad. Board is often a testing ground for easing rules on valuations. Japanese Prime Minister shinzo abe has claimed victory in the upper house election but is short of a super majority that would allow him to push through a revised constitution. This keeps them on course to be the longestserving leader of japan. On course to be the longestserving leader of japan. British airways is continuing to hold tight in cairo. It is constantly reviewing emergency arrangements and will never operate a flight if it is not safe. Suspended cairo flights over the weekend but now his resume services. Cairo is downplaying any threats. The latest opinion poll in the u. S. States that will hold primaries puts joe biden ahead of the field to challenge President Trump next year. The former Vice President has 25 support, ahead of senators is,zabeth warren, kamala harr and bernie sanders. This is bloomberg. In with howcheck the markets are doing with Sophie Kamaruddin in hong kong. Weeke we are starting the on a cautious note for equity investors. Tokyo is leading the drop. Investors are assessing optimism fed cut rate. Fed cut rate. Electronics are some of the biggest liars. We digest the latest export data from korea. Asahi has proposed a deal to expand its global footprint through previous rants premium brands. Mentionedd to quickly flex the group shares that are adding 12 . Kathleen the Chinese Government office in hong kong has condemned what it calls a siege of the building by prodemocracy protesters. To theed tear gas efforts the protesters. Why is this office such an important part target at this point in time . This is the chinese Liaison Office. It is a nondescript building and a nondescript part of town. Some of the protesters contends that this building is ground zero for beijings and attemptsdling to interfere with the one country, two systems and attemps. O some of them dug up parts of the pavement and hurled bricks. The Hong Kong Government came out and said their actions were infringing on the sovereignty of china. Imagine if the Chinese Embassy in washington wasimagine if they in washington was attacked by a group of protesters. You would expect police there to move in and dispersed the crowd. They came in with tear gas. This is a residential part of the New Territory near the chinese border. Around about the same time yesterday, a group of organized, progovernment demonstrators attacked people who looked like protesters. They were attacked on the metro. A new, disturbing, darker part of the protests that are happening here in hong kong. What is the broader impact on hong kong . These protests are going on six weeks now. A couple of weeks ago i had a phone call from a friend of mine in melbourne. She asked if it was safe to come to hong kong in november. I said of course it is going to be saved. These protests are only in one area. But now were seeing them spread. Some outsideern by hong kong that may hong kong is not safe to come to. Sales in some stores in hong kong have been affected by the protests. By the fact that mainland tourists might not come here. I think it will be interesting to watch carefully what Companies Say about how the protests are affecting their sales. Hong kongs economy is very dependent on the lecture a good spending that takes place here. Thank you very much for joining us. The u. K. Is trying to lower tensions after iran seized a oil tanker in the strait of hormuz. It has raised fiction at one of the worlds Critical Energy chokepoints. Theresa may will lead a meeting of the governments Emergency Committee later on. Where is all of thewhere is all this heading . It is trying to push allies to not allowed trade with iran, particularly in oil. At this point, it is really this dual situation. Paul what is a run saying iran saying . Iran saying . They are saying theyre keeping the tanker for judicial review. They say this is that the uks making. The ship was not where it was supposed to be. It was not following maritime rules. There couldve been a collision. That is their position. They were trying to protect shipping in the region. Some say this is in retaliation by moves that have been made the u. S. Kathleen what have we heard out of washington . Obviously, iran is very big on the white house agenda right now. On the one hand, President Trump was saying that the u. S. Is working with the u. K. And will try to get to the bottom of this. Hand, he made a very typical statement about iran, they are nothing but trouble. They are trying to lower down the temperature and see if there is still some way to resolve this without it escalating further. Kathleen thank you so much for that. Up next, a fresh batch of 25 Companies Start trading on a new shanghai tech board today. Is there investor demand . This is bloomberg. Been a year since president xi jinping first half of it. Board is thetar latest attempt to convince the companys top tech talents to list and trade at home. The idea is tothe idea is to ene tech listings. Will it work . It is a pilot program. All eyes are focused on it. Expectations. T of could be some initial volatility when it starts trading today. Paul we have 25 companies there. Some pretty easy rules. Some pretty easy rules. No regulatory cap on evaluation. Does it sound risky . The goal is to create the nasdaq of china. The chinese regulator in the is looking forward to this development for years. Finally it comes to fruition. The key is for the industry to identify the best quality, high potential Growth Companies and for the market to participate. Kathleen we were just were just mentioning how hard it is for some of the really small startups to get capital. It is obviously really important for them. Some of the private tech firms are showing no interest in the star market. Is it just a matter of getting enough companies there . Creating a certain way to get the big ones on board . There is a combination. Companies have a lot of things to look at. How mature is the market . What is the use of the process . Secondly, four star, there are a lot of uncertainties ahead. Choose a company to new listing venue, it takes a bit of courage. Way is to observe for a few months and then let the market stabilize. Getting Critical Mass is important. Thing mentioned in this story is that raising money and dollars is still a powerful hook for Chinese Technology companies. You get a hard currency exit if you need it. Dollars you can raise in u. S. And hong kong. How big of a hurdle is that . Does it mean the bigger Tech Companies will not list . Factors. Are a lot of one of the key considerations is where the company is going to use the listing process. Whether it is for Global Expansion or domestic growth. Andency and liquidity maturity of the market are concerns for the big Tech Companies. They are watching it very closely. They want to give them a fair option. See a fair expect to bit of volatility for today and the rest of the week. I think it is designed this way. Obviously, with the registration. The marketdriven pricing. There is no limit up in the limit down. Those could potentially indicate volatility in the first weeks. Expect some volatility, especially for this morning. Kathleen down the road, after a year, how much would the listing value be . If you go down five years, 10 years . If you go down five years, 10 years . With all of the criticisms and doubts people can raise, there is so much potential for this to get huge. What do you think is going to happen . What do you think is going to happen . It is still too early to tell. We will look at the first weeks and months to see how the market entails. Is going through structural change where direct financing will be increasingly important. A welldeveloped Capital Market catering to a highgrowth sector in the industry. That is the key trend. That will be the direction for Chinese Companies to go list. Kathleen we will see how it goes. We will see how it goes. We will have to have you back after we have it out of the gate. Dont forget, our interactive tv function, tv. You can watch live and catch up with pass interviews and dive into securities and bloomberg functions that we talk about constantly. And you can become part of the conversation. This instant messages during our shows. This is bloomberg. This is bloomberg. Get aen now we will quick check of the latest business flash headlines. Discussions on investing jet airways. Arereport says they examining funding requirements to pay creditors and a bid to bring the airlines back to size. Last month, talks have said to broken down. Paul the Bridgewater Associates posted one ofhas its worst performances. It lost 4. 9 in the First Six Months of 2019. But it managed to recover some of those losses this month. Kathleen avatar has finally been toppled is the highest grossing film of all time. Avengers end game has now taken 2. 8 billion in theaters worldwide. Avatar held the record for 10 years. Game only ranks 16th if you factor in inflation with the top spot still held by 1939 gone with the wind. Paul lets get a preview of what to watch for in markets later this morning with Sophie Kamaruddin in hong kong. Philippine market watchers will be turning into the president s state of the unit address. There may be more support. Now trading above the key 8000 level. Were met by a six straight day of positive allocations. After this mornings exports what from korea, we have is going on with data from taiwan. What is going on with data from taiwan. The worst may be over for the bellwether economy after exports unexpectedly rose in june. We are keeping a close eye on the start for chinas new star market. Morning. Eginning this lots of enthusiasm anticipated around thelots of enthusiasm and around the start. Paul a big day indeed. Before we hand over to Bloomberg Markets asia, lets locate look at how we are trading right now. Mostly in the red. Off an australia, we are fifth of 1 . 1 . 1 . We are counting down to the opening of trade on mainland and hong kong markets. Shanghais new tech market premieres today. Kathleen a new turn and the hong kong street protests. Assses erupt
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