1 00:00:03,890 --> 00:00:05,900 Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean 2 00:00:06,240 --> 00:00:09,780 Sean Aylmer: Aylmer. We talk a lot about investing in Australia and 3 00:00:09,840 --> 00:00:12,660 Sean Aylmer: the US and Europe, particularly the UK, but today we 4 00:00:12,660 --> 00:00:16,990 Sean Aylmer: are looking in a different direction, more towards Asia. BlackRock's 5 00:00:17,040 --> 00:00:21,229 Sean Aylmer: Chief Investment Strategist for Asia Pacific is Ben Powell. He's 6 00:00:21,230 --> 00:00:23,320 Sean Aylmer: normally based in Singapore, but he's in Australia for a 7 00:00:23,320 --> 00:00:25,300 Sean Aylmer: few days, so we've grabbed him for a chat. Ben, 8 00:00:25,300 --> 00:00:26,390 Sean Aylmer: welcome to Fear and Greed. 9 00:00:26,930 --> 00:00:30,160 Ben Powell: Great to be with you. Great to be in Australia. First time in two years, so looking 10 00:00:30,160 --> 00:00:30,580 Ben Powell: forward to it. 11 00:00:31,020 --> 00:00:33,159 Sean Aylmer: Mind you, your job, I'm sure you travel a lot, 12 00:00:33,460 --> 00:00:37,680 Sean Aylmer: so the pandemic would've stunted that somewhat, which would've been 13 00:00:37,680 --> 00:00:39,160 Sean Aylmer: good, but it must be nice to you back out 14 00:00:39,340 --> 00:00:40,330 Sean Aylmer: and around the place again. 15 00:00:40,830 --> 00:00:43,700 Ben Powell: That's true, yeah. So normally, in the old days, travel 16 00:00:43,700 --> 00:00:46,240 Ben Powell: was kind of the norm. For two years, my wife 17 00:00:46,240 --> 00:00:48,830 Ben Powell: and our four children have been in Singapore. Singapore's a 18 00:00:48,830 --> 00:00:52,540 Ben Powell: great place, for sure, but seeing something a bit different, 19 00:00:52,670 --> 00:00:55,460 Ben Powell: just walking the streets of Sydney, Circular Quay, cup of 20 00:00:55,460 --> 00:00:58,450 Ben Powell: coffee, has been fantastic, and looking forward to a bit 21 00:00:58,620 --> 00:01:00,130 Ben Powell: more of that in the weeks and months ahead. 22 00:01:01,100 --> 00:01:03,920 Sean Aylmer: Okay. Before we look at Asia specifically, I just want to 23 00:01:03,920 --> 00:01:07,250 Sean Aylmer: get your take on the global state of play. So 24 00:01:07,250 --> 00:01:11,880 Sean Aylmer: let's start with inflation and US interest rates. In a 25 00:01:11,880 --> 00:01:16,640 Sean Aylmer: thematic sense, how are you thinking about price rises globally, 26 00:01:17,000 --> 00:01:20,709 Sean Aylmer: and then central bank monetary policy, with obviously the FED 27 00:01:20,709 --> 00:01:21,330 Sean Aylmer: leading the way? 28 00:01:21,860 --> 00:01:24,340 Ben Powell: Yeah, so I think this is the main focus for many 29 00:01:24,340 --> 00:01:26,280 Ben Powell: investors all over the world. So a couple of things to 30 00:01:26,280 --> 00:01:30,670 Ben Powell: say. Firstly, we at the BlackRock Investment Institute, our diagnosis 31 00:01:30,670 --> 00:01:34,450 Ben Powell: of inflation, obviously very high inflation currently, like 40 year 32 00:01:34,450 --> 00:01:39,940 Ben Powell: highs, it's being proportionately caused by supply factors, so semiconductor 33 00:01:39,940 --> 00:01:44,810 Ben Powell: shortages, port congestion, obviously a particularly horrendous acute example in 34 00:01:44,810 --> 00:01:49,140 Ben Powell: Ukraine currently vis a vis energy. So it's the supply side that's 35 00:01:49,140 --> 00:01:53,470 Ben Powell: driving it. So we think actually, as COVID hopefully recedes 36 00:01:53,470 --> 00:01:55,540 Ben Powell: more and more into the rear view mirror in more 37 00:01:55,540 --> 00:01:59,300 Ben Powell: and more economies, that should allow supply chains to free 38 00:01:59,300 --> 00:02:01,450 Ben Powell: up, as it were, more goods can get to more 39 00:02:01,450 --> 00:02:04,450 Ben Powell: people a bit more straightforwardly, a bit more easily. So 40 00:02:04,450 --> 00:02:08,440 Ben Powell: that should see inflation come down, still probably at quite 41 00:02:08,440 --> 00:02:11,500 Ben Powell: high levels, but come down from the extremely high levels 42 00:02:11,500 --> 00:02:15,090 Ben Powell: currently. So given that, given our diagnosis of inflation is, 43 00:02:15,210 --> 00:02:17,820 Ben Powell: it's kind of the supply side that's driving it, we 44 00:02:17,820 --> 00:02:20,270 Ben Powell: think there's only so much even the mighty FED can 45 00:02:20,270 --> 00:02:22,590 Ben Powell: do, right? The FED can raise rates a lot or a 46 00:02:22,590 --> 00:02:26,010 Ben Powell: little bit, that's not going to impact semiconductor shortages, port 47 00:02:26,010 --> 00:02:28,350 Ben Powell: congestion, and so forth. So where do we end up? 48 00:02:28,350 --> 00:02:32,020 Ben Powell: We think the FED is currently unrealistically hawkish. We don't 49 00:02:32,020 --> 00:02:34,020 Ben Powell: think they're going to be able to achieve their dots. 50 00:02:34,510 --> 00:02:36,630 Ben Powell: We're a little bit dovish. So that leads us to 51 00:02:36,630 --> 00:02:39,770 Ben Powell: a kind of still quite constructive overall risk framing, which 52 00:02:39,770 --> 00:02:40,980 Ben Powell: I can get into if that's helpful, Sean. 53 00:02:41,570 --> 00:02:45,649 Sean Aylmer: Well, yeah, it's interesting that you are probably not among the consensus there, 54 00:02:45,650 --> 00:02:48,660 Sean Aylmer: because although probably the last weeks, a fair bit has 55 00:02:48,660 --> 00:02:52,190 Sean Aylmer: changed with people's view of the FED, but many people 56 00:02:52,300 --> 00:02:54,410 Sean Aylmer: have been very critical of central banks for not moving 57 00:02:54,590 --> 00:02:58,669 Sean Aylmer: fast enough, particularly here in Australia. I just want to 58 00:02:58,669 --> 00:03:03,040 Sean Aylmer: move on the ... you mentioned energy there. How does energy fit 59 00:03:03,040 --> 00:03:07,150 Sean Aylmer: into the puzzle at the moment? Is that just supply 60 00:03:07,150 --> 00:03:09,760 Sean Aylmer: side? And if so, it could be a long term 61 00:03:09,760 --> 00:03:12,930 Sean Aylmer: supply side issue though, couldn't it, because of the war in Ukraine, Russia. 62 00:03:13,560 --> 00:03:15,919 Ben Powell: It definitely could. A lot in that short question. So it's going 63 00:03:16,470 --> 00:03:18,929 Ben Powell: to persist, we think, not least obviously see in the 64 00:03:18,930 --> 00:03:21,690 Ben Powell: short term with the situation in Ukraine, but over the 65 00:03:21,690 --> 00:03:24,200 Ben Powell: medium and even long- term, we've got the green transition 66 00:03:24,200 --> 00:03:27,690 Ben Powell: which is ongoing, and seems to be kind of happening. 67 00:03:28,020 --> 00:03:30,810 Ben Powell: 90, nine zero, percent of the world's GDP has now 68 00:03:30,810 --> 00:03:34,450 Ben Powell: signed up for some form of the net zero commitment 69 00:03:34,480 --> 00:03:37,290 Ben Powell: over the decades ahead, so it looks like that's happening, 70 00:03:37,640 --> 00:03:40,520 Ben Powell: but it will obviously cost some investments. So that's going 71 00:03:40,520 --> 00:03:44,510 Ben Powell: to be another critical background reality, I suppose, which is 72 00:03:44,510 --> 00:03:46,930 Ben Powell: likely to keep energy prices a bit higher. Your question, 73 00:03:47,140 --> 00:03:50,250 Ben Powell: is this just a supply side situation? I think the 74 00:03:50,250 --> 00:03:53,550 Ben Powell: answer is no. It is impacting demand. We are seeing 75 00:03:53,550 --> 00:03:57,700 Ben Powell: growth revisions down, particularly in Europe, and on the other side 76 00:03:57,700 --> 00:04:00,870 Ben Powell: as it were, inflation, clearly a bit higher, so not 77 00:04:00,870 --> 00:04:05,320 Ben Powell: stagflation, but definitely a stagflationary shock, which is disproportionately hurting 78 00:04:05,320 --> 00:04:06,230 Ben Powell: Europe right now. 79 00:04:07,340 --> 00:04:11,460 Sean Aylmer: Okay. You mentioned the transition to net zero and how 80 00:04:11,460 --> 00:04:14,590 Sean Aylmer: much of the global GDP has signed up to it. 81 00:04:15,240 --> 00:04:18,839 Sean Aylmer: How should we think about what's going on at the 82 00:04:18,839 --> 00:04:23,099 Sean Aylmer: moment? So if we're reducing exports out of Russia, so 83 00:04:23,100 --> 00:04:27,270 Sean Aylmer: imports from Russia, we still need energy. Europe certainly still 84 00:04:27,270 --> 00:04:33,300 Sean Aylmer: needs energy. So potentially, that will boost fossil fuel output, 85 00:04:34,200 --> 00:04:38,360 Sean Aylmer: but does it also boost renewable output and, in two 86 00:04:38,360 --> 00:04:39,950 Sean Aylmer: or three years time, we might look back and say 87 00:04:39,950 --> 00:04:43,750 Sean Aylmer: actually the war with Russia and Ukraine, or Russia's invasion 88 00:04:43,750 --> 00:04:47,419 Sean Aylmer: of Ukraine, actually helped the shift to renewables, because it 89 00:04:47,420 --> 00:04:49,320 Sean Aylmer: bought more online. How do we think about it? 90 00:04:51,110 --> 00:04:54,200 Ben Powell: I think the current situation of much higher prices is 91 00:04:54,200 --> 00:04:57,960 Ben Powell: acting as an accelerant for something like preexisting trends. So 92 00:04:57,960 --> 00:04:59,839 Ben Powell: the world is moving in a direction of trying to 93 00:04:59,839 --> 00:05:02,900 Ben Powell: build the energy architecture and infrastructure of the future. I 94 00:05:02,900 --> 00:05:07,200 Ben Powell: think that's not new, but the urgency around that, unfortunately 95 00:05:07,279 --> 00:05:10,680 Ben Powell: has been made clearer over the last several weeks. Yeah. 96 00:05:10,680 --> 00:05:12,210 Ben Powell: I kind of agree with the gist of your question, 97 00:05:12,210 --> 00:05:16,070 Ben Powell: which is this is going to see an acceleration, a 98 00:05:16,070 --> 00:05:20,870 Ben Powell: heightened urgency around, as I say, the investment, which by 99 00:05:20,870 --> 00:05:22,580 Ben Powell: the way is going to take years and decades, right? We 100 00:05:22,580 --> 00:05:24,730 Ben Powell: don't just solve for this in a few months or 101 00:05:24,730 --> 00:05:26,450 Ben Powell: quarters. This is going to be a lot of money 102 00:05:26,450 --> 00:05:30,020 Ben Powell: over a long period of time, to build that infrastructure 103 00:05:30,020 --> 00:05:32,790 Ben Powell: of the future. But yes, I think the current very 104 00:05:32,790 --> 00:05:36,589 Ben Powell: high commodity prices, and the idea that we're perhaps depending 105 00:05:36,589 --> 00:05:38,940 Ben Powell: on some parts of the world, which is going to 106 00:05:38,940 --> 00:05:42,029 Ben Powell: become less easy to do over time, I think that 107 00:05:42,029 --> 00:05:46,850 Ben Powell: is very urgent, current political reality, directly impacting Europe most 108 00:05:46,850 --> 00:05:50,270 Ben Powell: obviously. And so we're already seeing European political leaders start 109 00:05:50,270 --> 00:05:52,150 Ben Powell: to pivot, I guess, a little bit towards some of 110 00:05:52,150 --> 00:05:54,480 Ben Powell: this, as we call it, the energy infrastructure of the future. 111 00:05:55,339 --> 00:06:02,969 Sean Aylmer: Stay with me, Ben, we'll be back in a minute. My guest 112 00:06:02,970 --> 00:06:06,300 Sean Aylmer: this morning is Ben Powell, BlackRock's Chief Investment Strategist for 113 00:06:06,300 --> 00:06:08,799 Sean Aylmer: Asia Pacific. Now look, I was reading an interview with 114 00:06:08,800 --> 00:06:11,950 Sean Aylmer: you recently about opportunities for global investors, and you said 115 00:06:11,950 --> 00:06:15,010 Sean Aylmer: China's multi- trillion dollar equity and bond markets opening up 116 00:06:15,300 --> 00:06:22,740 Sean Aylmer: is very exciting and unprecedented. Given the geopolitical scene, where 117 00:06:22,740 --> 00:06:24,430 Sean Aylmer: are the big opportunities in China? 118 00:06:25,170 --> 00:06:27,570 Ben Powell: So a couple of areas, I think. So firstly, just 119 00:06:28,220 --> 00:06:31,100 Ben Powell: to make the very macro point, China is obviously playing 120 00:06:31,100 --> 00:06:33,900 Ben Powell: a very different game from the west. So China has 121 00:06:33,900 --> 00:06:37,710 Ben Powell: moved to a loosening cycle and has adopted, I think, 122 00:06:37,940 --> 00:06:42,169 Ben Powell: an almost a holistic pro- growth policy set across monetary 123 00:06:42,170 --> 00:06:46,220 Ben Powell: fiscal regulatory and other areas. So that's, as I say, 124 00:06:46,220 --> 00:06:48,719 Ben Powell: very different from what we're seeing in the west. So 125 00:06:48,720 --> 00:06:51,820 Ben Powell: the first thing I'd say is there's a diversification benefit, 126 00:06:52,440 --> 00:06:55,100 Ben Powell: I think, from where China is in the cycle, and 127 00:06:55,150 --> 00:06:58,369 Ben Powell: that being very different from the west. Couple of specifics 128 00:06:58,370 --> 00:07:02,659 Ben Powell: or more specifics, China government bonds by global standards yield 129 00:07:02,660 --> 00:07:06,730 Ben Powell: a lot, so something like 3%, which by global standards is, 130 00:07:07,089 --> 00:07:09,340 Ben Powell: maybe surprisingly, but that's kind of a really high number, 131 00:07:09,850 --> 00:07:13,900 Ben Powell: and we're seeing positive nominal yields and positive real yields 132 00:07:14,420 --> 00:07:17,620 Ben Powell: persist in China government bonds, which again is kind of 133 00:07:17,620 --> 00:07:21,970 Ben Powell: unusual, by global developed market standards. A related point, I 134 00:07:21,970 --> 00:07:26,180 Ben Powell: guess, given that backdrop, it's no surprise perhaps that the 135 00:07:26,180 --> 00:07:29,560 Ben Powell: Chinese currency has been very strong over the last couple 136 00:07:29,560 --> 00:07:31,790 Ben Powell: or three years, something like the strongest currency in the 137 00:07:31,790 --> 00:07:36,120 Ben Powell: world. So unhedged investments into China government bonds have yielded 138 00:07:36,120 --> 00:07:39,910 Ben Powell: pretty well, and have benefited from that foreign exchange appreciation, 139 00:07:39,910 --> 00:07:42,490 Ben Powell: which has been pretty strong for the last two or 140 00:07:42,490 --> 00:07:46,340 Ben Powell: three years. Coming into equities land, obviously any investment is 141 00:07:46,340 --> 00:07:50,220 Ben Powell: risky. We are extremely aware that there are multiple headwinds 142 00:07:50,220 --> 00:07:55,480 Ben Powell: in China, COVID situation, geopolitical tensions, some challenges in property 143 00:07:55,930 --> 00:07:58,660 Ben Powell: and many others, so the question for us isn't, is investing 144 00:07:59,220 --> 00:08:01,490 Ben Powell: in China equities ... is it risky or not? Obviously any 145 00:08:01,490 --> 00:08:04,650 Ben Powell: investment is inherently risky. The better question we think is, 146 00:08:04,650 --> 00:08:07,660 Ben Powell: are we being appropriately compensated for that risk? And from 147 00:08:07,660 --> 00:08:10,490 Ben Powell: here, we think the answer is something like, yes. So 148 00:08:10,490 --> 00:08:14,230 Ben Powell: we have a small overweight in China equities, and quite 149 00:08:14,230 --> 00:08:16,780 Ben Powell: interestingly, just in the last couple of days after the 150 00:08:16,780 --> 00:08:20,130 Ben Powell: rally we've seen in some China shares, Hang Seng is 151 00:08:20,130 --> 00:08:22,360 Ben Powell: currently, year to date, this can change, but year to date is 152 00:08:22,700 --> 00:08:26,730 Ben Powell: now actually outperforming both US and European indices, which I 153 00:08:27,260 --> 00:08:31,330 Ben Powell: guess is some small evidence in that direction of diversification 154 00:08:31,330 --> 00:08:34,670 Ben Powell: and the benefits of exposure to that are still obviously 155 00:08:34,670 --> 00:08:37,590 Ben Powell: strongly growing, opening up a market , as you were saying. 156 00:08:38,630 --> 00:08:41,300 Sean Aylmer: So on that risk reward spectrum, are there any particular 157 00:08:41,300 --> 00:08:43,939 Sean Aylmer: sectors you like in China, or things you don't like? 158 00:08:44,510 --> 00:08:46,240 Ben Powell: So a couple of areas. I guess the big one, 159 00:08:46,240 --> 00:08:48,980 Ben Powell: I think, is technology. So over the last 12 months, 160 00:08:48,980 --> 00:08:52,209 Ben Powell: there's been a lot of confusion around the anti- monopoly 161 00:08:52,210 --> 00:08:56,170 Ben Powell: clamp down, and a sense that the regulatory burden is 162 00:08:56,170 --> 00:08:58,770 Ben Powell: only going one way, which is to say harsher. So 163 00:08:58,770 --> 00:09:01,920 Ben Powell: I think we've now seen something like the peak in 164 00:09:01,920 --> 00:09:04,699 Ben Powell: that regulatory clamp down. I want to be really clear. 165 00:09:04,700 --> 00:09:06,959 Ben Powell: I don't think it's going away, so to extend my 166 00:09:06,960 --> 00:09:09,350 Ben Powell: metaphor of using peaks, the right peak to think about 167 00:09:09,350 --> 00:09:11,720 Ben Powell: is Table Mountain in South Africa, so I think we've 168 00:09:11,720 --> 00:09:14,260 Ben Powell: moved to a higher level, and we're going to stay 169 00:09:14,260 --> 00:09:17,650 Ben Powell: there. So again, it's not like this regulatory downdraft is 170 00:09:17,650 --> 00:09:20,650 Ben Powell: going away, but I think it has probably topped out, 171 00:09:20,650 --> 00:09:22,910 Ben Powell: at least for the moment. So that should give some 172 00:09:22,910 --> 00:09:25,420 Ben Powell: of the very big companies, some of the technology names, 173 00:09:25,809 --> 00:09:28,520 Ben Powell: a bit more space to perform. And when you look 174 00:09:28,520 --> 00:09:31,750 Ben Powell: at them, for example, China tech names, cash as a 175 00:09:31,809 --> 00:09:35,189 Ben Powell: percentage of market cap. It's like 20%, which is fairly 176 00:09:35,190 --> 00:09:38,990 Ben Powell: interesting perhaps, but critical to this is this alleviation of 177 00:09:39,340 --> 00:09:41,750 Ben Powell: the regulatory downdraft, which as I say, I think we 178 00:09:41,750 --> 00:09:43,590 Ben Powell: are in the early stages of seeing. 179 00:09:44,110 --> 00:09:46,740 Sean Aylmer: Okay, so let's just leave China. What about other places 180 00:09:46,740 --> 00:09:49,730 Sean Aylmer: in the region? Japan, India, South Korea, Indonesia, those sorts 181 00:09:49,730 --> 00:09:50,760 Sean Aylmer: of markets. 182 00:09:51,429 --> 00:09:53,610 Ben Powell: Yeah. So preference within the region, I guess, I'd say 183 00:09:53,610 --> 00:09:56,030 Ben Powell: a couple of things. Firstly, China, we just touched on. Japan 184 00:09:56,390 --> 00:09:59,800 Ben Powell: again, quite interesting. Japan, if anything is becoming even more 185 00:09:59,800 --> 00:10:02,300 Ben Powell: dovish, right? So not only is Japan not playing the 186 00:10:02,300 --> 00:10:06,340 Ben Powell: same game as the FED, ECB, RBA to a degree, the 187 00:10:06,340 --> 00:10:10,319 Ben Powell: BOJ, if anything, is even becoming more dovish. So that 188 00:10:10,559 --> 00:10:14,090 Ben Powell: is quite interesting. Again, very different, and that combined with 189 00:10:14,090 --> 00:10:17,290 Ben Powell: an opening up that we're seeing both in Japan and 190 00:10:17,290 --> 00:10:21,640 Ben Powell: globally, Japan's got some fantastic export companies, obviously, and as 191 00:10:21,640 --> 00:10:24,150 Ben Powell: we see the world continue to open up, Japan should 192 00:10:24,150 --> 00:10:28,380 Ben Powell: benefit disproportionately. So Japan valuation looks not too bad, domestic 193 00:10:28,380 --> 00:10:32,150 Ben Powell: stimulus, not just ongoing, but actually increasing if anything, and 194 00:10:32,150 --> 00:10:34,820 Ben Powell: as I mentioned, the very good company gearing into a 195 00:10:34,820 --> 00:10:38,140 Ben Powell: global reopening, we think, is a good spot. In the 196 00:10:38,140 --> 00:10:40,750 Ben Powell: broader region, I won't go through them all line by 197 00:10:40,750 --> 00:10:43,270 Ben Powell: line because probably lose the listeners' interest, but I would 198 00:10:43,270 --> 00:10:47,750 Ben Powell: say the obvious point, but it's important, is thinking about 199 00:10:47,750 --> 00:10:51,120 Ben Powell: who is resilient to the current inflation shock, and who 200 00:10:51,120 --> 00:10:55,080 Ben Powell: is vulnerable, right? So broadly, Asia is short calories, right? 201 00:10:55,080 --> 00:10:59,189 Ben Powell: Broadly, Asia is a importer of energy and food. Clearly 202 00:10:59,190 --> 00:11:01,450 Ben Powell: with the price surprise that we've seen, the price increase 203 00:11:01,450 --> 00:11:03,829 Ben Powell: that we've seen, there are some economies that are going 204 00:11:03,830 --> 00:11:07,400 Ben Powell: to continue to suffer a headwind. Conversely, Australia amongst them, 205 00:11:07,410 --> 00:11:09,770 Ben Powell: obviously, there are some economies that are much better positioned, 206 00:11:10,160 --> 00:11:12,969 Ben Powell: so that's another axis, so I'd think about splitting Asia, 207 00:11:12,970 --> 00:11:15,790 Ben Powell: I guess, into those relative winners and losers from the 208 00:11:15,790 --> 00:11:17,209 Ben Powell: current inflationary backdrop. 209 00:11:17,830 --> 00:11:19,560 Sean Aylmer: Ben, thank you for talking to Fear and Greed. 210 00:11:20,050 --> 00:11:20,439 Ben Powell: Thank you. 211 00:11:21,110 --> 00:11:24,400 Sean Aylmer: That was Ben Powell, BlackRock's Chief Investment Strategist for Asia 212 00:11:24,410 --> 00:11:26,950 Sean Aylmer: Pacific. This is a Fear and Greed daily interview. Join 213 00:11:26,950 --> 00:11:29,210 Sean Aylmer: us every morning for the full episode of Fear and Greed, 214 00:11:29,510 --> 00:11:33,240 Sean Aylmer: Australia's most popular business podcast. I'm Sean Aylmer, enjoy your day.