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Speaker 1: The information provided in this program is of a general

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Speaker 1: nature and is not intended to be personalized financial advice.

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Speaker 1: We encourage you to seek appropriate advice from a qualified

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Speaker 1: professional to suit your individual circumstances. The black Rock Investment

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Speaker 1: Institute made the correct overweight call on Japanese equities early,

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Speaker 1: So where in Asia is it picking.

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Speaker 2: Or grow next?

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Speaker 3: The normal GDP in Japan is growing and growing quite fast.

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Speaker 3: That's a huge change and a massive tail winder for

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Speaker 3: the economy in general. You're also seeing at the same

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Speaker 3: time a corporate governance revolution.

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Speaker 4: I would say.

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Speaker 1: Japan has some of the best performing stock markets of

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Speaker 1: twenty twenty four so far, with the Tokyo Stock Price

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Speaker 1: Index and Nickey Index both up around sixteen percent year

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Speaker 1: to date, on par with the US Nasdaq and beating

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Speaker 1: the S and P five hundred that's up around twelve percent.

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Speaker 2: In the Asia Pacific.

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Speaker 1: It's a clear standout to Shanghai and Australian markets three

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Speaker 1: percent growth and.

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Speaker 2: New Zealand's measly one percent.

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Speaker 1: Year to date, an a sign that equities in Japan

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Speaker 1: were priced cheap. More than one thousand listed Japanese companies,

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Speaker 1: including Honda and Mitsubishi brought back their own stock at

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Speaker 1: record amounts, with total share buybacks heading a record nine

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Speaker 1: point six trillion yen last year according to Nikayasia, while

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Speaker 1: some corporates returned capital to shareholders, with dividends said to

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Speaker 1: have an annual record high of fifteen trillion yen and

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Speaker 1: the financial.

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Speaker 2: Year ended March.

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Speaker 1: But its currency, the yen, is super weak compared to

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Speaker 1: the US dollar, close to a thirty four year low.

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Speaker 2: That boosts the value.

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Speaker 1: Of earnings for Japanese companies that could result in currency

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Speaker 1: intervention from the Bank of Japan. The central bank has

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Speaker 1: been at odds with other major economies. It's been wanting

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Speaker 1: more inflation and wage growth. It's now raising interest rates

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Speaker 1: after being in negative rate territory since twenty sixteen. Money

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Speaker 1: has been flowing out of Japanese equities since then, but

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Speaker 1: Blackrock brought in last year and it's paying off. In

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Speaker 1: this interview, it's chief Asia Pacific strategist Ben Powell explains

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Speaker 1: why and what he's eyeing next.

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Speaker 2: Thanks a much your time, been lovely to have you

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Speaker 2: back in New Zealand. Welcome back.

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Speaker 4: Great to be here, Thanks for having me.

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Speaker 1: Now, last time we spoke, Ben, we spoke about the

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Speaker 1: opportunity that black Rocks saw in Japan. The investment institutor

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Speaker 1: since doubled down on that conviction. Talk me through what

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Speaker 1: you're seeing in Japan, how it's played out, and the

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Speaker 1: growth store yet to come.

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Speaker 4: You think, yeah, so there's more to come. We think,

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Speaker 4: so you're right.

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Speaker 3: When I was last here, we were talking very positively

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Speaker 3: about Japan, and some elements of that.

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Speaker 4: Have played out reasonably well.

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Speaker 3: So I would pass the Japan story into three elements. Firstly,

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Speaker 3: how you can think of the macro So Japan has

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Speaker 3: had twenty or thirty years of nominal GDP being approximately unchanged,

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Speaker 3: So that's quite dreary. You know, GDP is the same

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Speaker 3: number today that it was twenty or thirty years ago.

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Speaker 3: That's now fundamentally evolved. Nominal GDP in Japan is growing

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Speaker 3: and growing quite fast. That's a huge change and a

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Speaker 3: massive tail wind for the economy in general and for

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Speaker 3: equity markets specifically. So that's the macro picture, if you like,

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Speaker 3: At a more micro level, you're also seeing at the

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Speaker 3: same time a corporate governance revolution.

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Speaker 4: I would say, I don't use that term too often.

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Speaker 3: I know strategies through around the world revolution a lot

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Speaker 3: but I think this really is a revolution where Japanese companies,

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Speaker 3: under significant pressure from authorities are treating their shareholders much better.

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Speaker 3: So that's an ongoing story. We should see, by the way,

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Speaker 3: a lot of news around that in the next several weeks.

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Speaker 3: It's an annual annual general meeting season in Japan, so

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Speaker 3: companies will give us updates on that. So I think

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Speaker 3: the kind of micro story of japan corporate governance also evolving.

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Speaker 3: And lastly, thirdly, you've seen significant tax Don't worry. I

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Speaker 3: won't talk too much about tax. I find it exciting,

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Speaker 3: but I get that you're viewed it.

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Speaker 2: I do do I might not shamedly.

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Speaker 4: So this is.

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Speaker 3: Really working in terms of encouraging Japanese domestic savers who've

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Speaker 3: got loads of money I should say medicine.

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Speaker 4: So they've got around.

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Speaker 3: Seven trillion dollars of cash sitting in bank accounts, which

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Speaker 3: is a lot. And if authorities can create incentives, which

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Speaker 3: they are, to make it more tax efficient to put

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Speaker 3: some of that money into equity market, that could work.

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Speaker 3: And this is very early stages, but we're seeing some

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Speaker 3: of that happening. So that blend of a much better

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Speaker 3: macro story, A corporate governance revolution and tax incentives to

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Speaker 3: make it much more kind of appealing for Japanese domestic

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Speaker 3: savers to move from their bank accounts at the margin

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Speaker 3: into investments.

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Speaker 4: Is all pretty positive. So we think that's ongoing.

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Speaker 3: And yes, as you say, we've doubled down on the

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Speaker 3: Japan call, we are overweight Japan equity. Still think there's

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Speaker 3: more to go.

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Speaker 1: Am I correcton thinking that currently in Japan there's not

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Speaker 1: much invesement happening by Japanese people, Is that correct?

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Speaker 3: It's a little bit correick. So Japan has been as

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Speaker 3: I said, it's been pretty tough leaving for several decades.

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Speaker 3: So what I think you're seeing now is a very

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Speaker 3: slow It takes time, but I think you are seeing

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Speaker 3: an awakening of the reality from Japanese people that inflation

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Speaker 3: is a real thing. So if you think about it,

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Speaker 3: for twenty or thirty years, the price of your cup

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Speaker 3: of coffee has not gone up, so you have not

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Speaker 3: needed to worry about inflation.

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Speaker 4: Indeed, it's probably got cheaper.

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Speaker 3: So long as you've had money in the bank staying

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Speaker 3: the same, Your ability to buy cups of coffee's gone up.

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Speaker 4: Your purchasing power has increased.

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Speaker 3: Now you have inflation in the economy for the first

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Speaker 3: time in a generation or maybe.

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Speaker 4: Even two generations.

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Speaker 3: The need to have assets in your portfolio that at

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Speaker 3: least give you a chance of keeping up with inflation

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Speaker 3: is becoming more obvious now, Madison. That doesn't happen overnights, right.

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Speaker 3: You don't go from a twenty or thirty year economic

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Speaker 3: paradigm to a new paradigm and everyone just clicks their

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Speaker 3: fingers and says, hey, presto, inflation, we.

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Speaker 4: Need to change.

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Speaker 3: It takes time, but I think you are starting to

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Speaker 3: see some investment now, some change in that psyche. Very slowly,

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Speaker 3: this is years, maybe even decades, but you are seeing

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Speaker 3: some evidence of a move out of cash into assets,

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Speaker 3: including equities, a little bit of real estatement. Let's just

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Speaker 3: stay with equities. So I would say you're seeing small,

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Speaker 3: early signs. I don't want to over make that point,

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Speaker 3: but a little bit. But as an economist, I think

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Speaker 3: it's very likely we see more of that because the

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Speaker 3: incentives are so clear. As a domestic savior, inflation is happening,

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Speaker 3: and you're going to have to reallocate to try and

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Speaker 3: be more defensive, more resilient, to inflation. It'll take some time,

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Speaker 3: but I think we're going to see more of that

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Speaker 3: in the months and quarters ahead.

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Speaker 1: It's so interesting, isn't it, Because Japan, and specifically the

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Speaker 1: Bank of Japan, the Central Bank, has actually wanted inflation.

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Speaker 2: They've desired it.

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Speaker 1: In their economy, which is very different stories to the

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Speaker 1: places that we live down under.

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Speaker 2: There's also the story of the yin being very weak at.

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Speaker 1: The moment, and I'm interested in your thoughts on that.

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Speaker 1: How much of that is playing into your thesis. It

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Speaker 1: sounds like from those three points you made not much

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Speaker 1: at all, not much a bit right.

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Speaker 3: So it's true that Japan's got some amazing export companies

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Speaker 3: and if the ends a bit che cheaper, there more competitive,

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Speaker 3: so that that's true, but it's not to your point matters.

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Speaker 3: It's not really the main thrust of our story. Our

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Speaker 3: story is much more to do with the japan economic renaissance.

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Speaker 3: It's the awakening of the sleeping Japanese domestic giants. Obviously

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Speaker 3: a huge economy by some measures, the second biggest economy

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Speaker 3: in the world. So what we're more exhilarated by is

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Speaker 3: the potential boom in Japan, meaning Japan, Japan in Japan

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Speaker 3: rather than Japan going out to the world. So if

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Speaker 3: we do see an upturn in consumer confidence as an example,

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Speaker 3: where people are earning more money, I mean, wages have

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Speaker 3: been flat for a long time. If people are earning

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Speaker 3: more money, feeling a little bit wealthier, can start to

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Speaker 3: spend a little bit more domestically, and.

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Speaker 4: So on and so forth.

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Speaker 3: That's the thrust of our story is much more a

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Speaker 3: Japan thing, which I'm not going to say is independent

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Speaker 3: of the currency. The currency is important, but it's not

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Speaker 3: really a weakly end thing. That's the crux of our story.

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Speaker 3: Our story is to do with this domestic Japan policy inflation,

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Speaker 3: significant change and the implications that has for the economy

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Speaker 3: in for markets.

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Speaker 1: How are you thinking about the Wigian as a potential

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Speaker 1: risk though, because the Bank of Japan could at this

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Speaker 1: right come in with currency intervenire.

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Speaker 4: Yeah, so the end definitely got weaker.

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Speaker 3: It's kind of a running joke as to if you go,

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Speaker 3: if I'm lucky enough to be on business in Tokyo,

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Speaker 3: I'll see lots of people.

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Speaker 4: From around Asia.

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Speaker 3: They're either on business or on holiday because it's a

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Speaker 3: fantastic country. I don't work for the Japanese of tourism board.

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Speaker 3: But obviously it's a wonderfully cheap time to go and enjoy,

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Speaker 3: and a lot of people are doing that. So there

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Speaker 3: are benefits to a weaker currency, but there are also limits.

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Speaker 3: So I think the Japanese authorities have done a pretty

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Speaker 3: good job over the last several weeks of stabilizing the currency.

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Speaker 3: It was depreciating, weakening a bit quick, and they've now

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Speaker 3: managed to put something of a floor into the end,

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Speaker 3: so it's a bit more stable from here. What's critical

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Speaker 3: is Bankachapan policy, and I think what we're going to

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Speaker 3: see is a continued, very careful they don't want to

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Speaker 3: scare the horses, but a very very careful normalization of

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Speaker 3: interest rates, which means a little bit higher, but very slowly,

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Speaker 3: very carefully, because to your point, Madison, the whole point

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Speaker 3: is to what they call dispel the deflationary mindset. So

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Speaker 3: what they don't want to do is accidentally hiker bit

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Speaker 3: quick and Japanese who've been used to thirty years of

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Speaker 3: deflation say hey, we're back to the old thing and

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Speaker 3: so forth, So they need to be very careful, yes,

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Speaker 3: raise rates in line with a much more buoyant economic backdrop,

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Speaker 3: but don't do too much and risk the change from

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Speaker 3: deflation to inflation, which is the center point of the

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Speaker 3: whole story.

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Speaker 1: I think returnal equity on Japanese equities is pretty low,

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Speaker 1: single digits at nine percent, so not very high. What

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Speaker 1: does it need to get to or what do market

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Speaker 1: valuations of Japanese equities broadly need to get to for

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Speaker 1: the Black Rock and Business Institute to cash out and

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Speaker 1: take some profits.

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Speaker 3: So the good news is, if I can put it

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Speaker 3: this is it used to be much lower than that.

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Speaker 3: So life's often about the change in, not the level,

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Speaker 3: as they say. So the change in has been rather

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Speaker 3: positive over the last many years. So you can go

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Speaker 3: all the way back to sadly the later Shinzo Abe

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Speaker 3: his three arrows, So back in twenty twelve thirteen, his

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Speaker 3: third arrow was really it was about a few things,

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Speaker 3: but it was about growth and creating a more kind

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Speaker 3: of dynamic economy, including an approach from companies which would

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Speaker 3: be more more more dynamic, I guess. So that's been

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Speaker 3: around for a decade and more. What changed about a

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Speaker 3: year or two ago was the Tokyo stock exchange kind

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Speaker 3: of amazing worth reading around. I think they got much

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Speaker 3: more aggressive is a strong word, but I think we

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Speaker 3: can use it. They got much more aggressive in really

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Speaker 3: encouraging their companies to do better by their shareholders. So

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Speaker 3: what we're seeing again, this takes time, It happens agm

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Speaker 3: by AGM, It doesn't just happen day by day. But

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Speaker 3: we're seeing a much more efficient use of balance sheets.

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Speaker 4: What does that mean.

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Speaker 3: It means in Japan, many companies have got slightly strange

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Speaker 3: crossholdings of each other. They own loads of property which

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Speaker 3: maybe they don't need all of it, and they've got

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Speaker 3: lots and lots of cash on the balance sheet. So

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Speaker 3: if you were to see an unwind of those crossholdings,

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Speaker 3: selling of some of the shares of your other companies

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Speaker 3: which you maybe don't really need, a bit of disposed

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Speaker 3: of some of the property again that maybe you don't need,

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Speaker 3: and maybe using some of the cash on your balance sheet,

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Speaker 3: using all of that for buybacks dividends. This is what

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Speaker 3: we're seeing. So the story over the last years has

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Speaker 3: been quite good. That's accelerated significantly in the last twelve

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Speaker 3: or eighteen months in line with this more aggressive approach

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Speaker 3: from Tokyo Stock Exchange in particular, and I think we're

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Speaker 3: going to see more of that. So you're right, nine

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Speaker 3: percent is not by American standards, is a low number,

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Speaker 3: not a high number, but it's significantly better than where

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Speaker 3: it was, and we think we'll continue on the upward trajectory,

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Speaker 3: which again is a tell wins for equity risk.

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Speaker 1: Of course been the anti argument to this thesis is

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Speaker 1: that this is already presced in and in Vesta says,

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Speaker 1: we know we're always looking forward. What's the next thing.

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Speaker 1: I'm sure they're asking you, Ben that they want to

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Speaker 1: invest in. There's now talk of the China equity trade

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Speaker 1: being back after a strong export print, and talk of

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Speaker 1: company revenue there is set to grow.

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Speaker 2: What are your thoughts on that?

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Speaker 3: So China, of course still has significant headwindsor demographics, geopolitics,

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Speaker 3: and the property overhang is still a significant issue.

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Speaker 4: So there's that.

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Speaker 3: But as has been noted a few times, there is

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Speaker 3: no such thing as bad assets, only bad prices. So

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Speaker 3: we can look back a couple of months ago and

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Speaker 3: look at China equity market a couple months ago trading

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Speaker 3: it's something like eight times earnings. It was just very,

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Speaker 3: very cheap, so you needed relatively little good news. We've

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Speaker 3: got a little bit of policy support, not so much,

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Speaker 3: just a little bit, but it turns out that was

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Speaker 3: enough to have seen a fairly significant rally in Chinese equities.

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Speaker 4: So where do we go from here? I think it's.

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Speaker 3: Absolutely critical that we see a bit more policy support.

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Speaker 4: So we have a large political event coming up.

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Speaker 3: They never tell us the exact date, but it's something

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Speaker 3: like early July will get the so.

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Speaker 4: Called Third Plenum. This is a big deal.

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Speaker 3: So this is when China authorities will communicate mainly to

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Speaker 3: their people, but we as markets participants obviously will be

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Speaker 3: listening with both ears if there is a change of

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Speaker 3: policy tone and approach.

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Speaker 4: And I think what's particularly important is property.

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Speaker 3: For most people in China, as in many countries all

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Speaker 3: around the world, once home is the big asset, right,

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Speaker 3: it's kind of all you care about. So if your

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Speaker 3: house price is going down, it slightly gives you the

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Speaker 3: hebgb's and makes you reluctant to go out and spend money.

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Speaker 3: So that's what we've seen in China over the last

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Speaker 3: couple of years is a very weak property market resulting

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Speaker 3: in a collapse again is a strong word, but a

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Speaker 3: significant fall and consumer confidence and a kind of tightening

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Speaker 3: of spending as a result. So if we can see

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Speaker 3: more policy which can give more confidence to the housing sector,

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Speaker 3: the property sector, that isn't just a big deal for property.

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Speaker 3: I think it'll be a big deal for the consumer

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Speaker 3: who've got loads of money, So Chinese consumers in aggregate.

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Speaker 3: I've got lots of savings stat for you that savings

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Speaker 3: rates in China are about six six percentage points higher

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Speaker 3: today than they were before COVID, and this is now

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Speaker 3: eighteen months after the COVID reopening. So it seems the

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Speaker 3: Chinese are a bit anxious about life more generally, they've

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Speaker 3: got the money. So if we can see it's an

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Speaker 3: if statement, But if we can see policy in a

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Speaker 3: month or so's time at the Plenum which is more

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Speaker 3: encouraging to property and therefore to households to spend some money,

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Speaker 3: that would that would be good. For now, we're neutral

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Speaker 3: China equities, which as we try and balance all of

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Speaker 3: these different things. But as the chief AGA strategist, I'm

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Speaker 3: watching this very carefully to see if there is more

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Speaker 3: support and therefore the potential for more moreigo.

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Speaker 1: I'm interested in how closely you're perhaps watching India, because

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Speaker 1: India is apparently outpacing or going to outpace China. Goldman

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Speaker 1: Sex came out recently saying that India's demographic looks very

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Speaker 1: similar to China's twenty years ago. They've seen that the

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Speaker 1: average age in India is twenty eight, which is what

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Speaker 1: China looked like in the nineteen nineties. Obviously they have

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Speaker 1: some demographic differences, but their populations are growing and their

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Speaker 1: contribution to the world economy and markets is not quite

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Speaker 1: on par with that yet.

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Speaker 2: Where does India sit in your ranks?

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Speaker 3: Yeah, we like it so lots of like as has

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Speaker 3: been observed. I think it was last year, maybe the

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Speaker 3: year before that India became the world's most populous nation.

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Speaker 3: I think, if I remember, they'd have a six thousand

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Speaker 3: year pause. They were the world's most populous nation. Then

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Speaker 3: China had a brief six thousand years of being number one.

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Speaker 3: Now it's back to India, so swings aroundabouts, I guess. So, Yes,

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Speaker 3: the demographic pyramid looks pretty good. A young labor force

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Speaker 3: coming through, able to do more and more work. So

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Speaker 3: I think when I think about India, we're constructive. I

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Speaker 3: don't want to make this an economics lecture, but GDP

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Speaker 3: is labor force times productivity. So we just talked about

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Speaker 3: the labor force looks pretty good, more and more workers

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Speaker 3: coming through. But I still think an underappreciated part of

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Speaker 3: the bull stories productivity angle. So India is becoming much

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Speaker 3: more efficient, unbelievable advances in technology, payment systems, many other

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Speaker 3: parts of the economy which have really it seems to

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Speaker 3: me when I go to India, it feels like India

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Speaker 3: from a financial markets perspective, a kind of ease of

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Speaker 3: doing business perspective, has moved something like fifty years in

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Speaker 3: the last five years. It really feels like a different

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Speaker 3: kettle of fish from where we were just half a

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Speaker 3: decade or a decade ago. So I think to your point,

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Speaker 3: the population backdrop looks super encouraging. That's true and important,

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Speaker 3: but I would double down on the productivity side, which

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Speaker 3: when we're equity holder, is that return on equity. That

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Speaker 3: efficiency is obviously very very important. So I think it's

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Speaker 3: the efficiency gains broad about by technological advances and a

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Speaker 3: more stable regulator environment such as we've seen over the

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Speaker 3: last eight years or so, which mean for us that

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Speaker 3: there's more to.

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Speaker 4: Go in India.

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Speaker 1: I know you're the apt guy bim, But we've just

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Speaker 1: got to touch on the US. Has its strength and

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Speaker 1: market surprised you this year?

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Speaker 3: Surely no, we've been overweight. So I guess we've called

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Speaker 3: that one okay, And the AI mega force is real

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Speaker 3: and ongoing, it seems it seems to us. So the

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Speaker 3: AI mega force has obviously been the driver I guess

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Speaker 3: of the big market returns. We feel that that AI

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Speaker 3: enthusiasm is appropriate. It's an astonishing technology I think going

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Speaker 3: to transform every facet of human existence really quicker by

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Speaker 3: the way. But coming down to a more economics level,

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Speaker 3: I think what's going to happen next is a couple

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Speaker 3: of things. One, I think we've kind of gone through

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Speaker 3: the wow moment. You know, everyone's played with the various

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Speaker 3: large language models and recognize that this is something like magic.

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Speaker 3: So I think what happened now is we move from

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Speaker 3: the magical moment into the very prosaic practical implications for

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Speaker 3: do we have enough data centers? Do we have enough power?

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Speaker 3: Do we have enough copper for the wires for the power?

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Speaker 3: So now I think what the market we'll move to

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Speaker 3: is AI is a real thing, but it also has

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Speaker 3: some very practical implications. For example, into power demand, and

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Speaker 3: we as investors we can think about the next stage,

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Speaker 3: if you like, as being potentially the next leg of

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Speaker 3: the AI store. So it's we think that the mega force,

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Speaker 3: the excitement around AI we think is completely appropriate, but

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Speaker 3: maybe the kind of specific areas of focus for us

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Speaker 3: as investors may evolve a little bit over time from

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Speaker 3: the Magnificent seven, the kind of technology providers, through to

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Speaker 3: supply chain implications, and then maybe to some of the

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Speaker 3: users of the technology who we think as individuals or

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Speaker 3: as companies if we can use this technology, well, it

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Speaker 3: should make us all more efficient and ultimately be good

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Speaker 3: for shareholders. So the enthusiasm, we think continues, but maybe

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Speaker 3: the slight the emphasis will slightly shift over time, which

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Speaker 3: is something that we at black Crock are focused on.

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Speaker 3: Is yes, the enthusiasm, but exactly where where next in

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Speaker 3: terms of where that enthusiasm could express itself in markets

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Speaker 3: is something we spend all day every day thinking about.

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Speaker 1: These long term mega forces that black Rock has put

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Speaker 1: out at incredibly interesting. But if we look at the

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Speaker 1: more immediate force on markets, its rights still and it's

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Speaker 1: still the inflation story. So it seems specifically in APEC,

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Speaker 1: but then also comparing that to other Western central banks.

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Speaker 1: How are you seeing this cutting game playing out the

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Speaker 1: ECB's done at Hoo's next in this corner of the world.

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Speaker 2: I'm assuming it's not us, and I won't be offended.

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Speaker 4: Yeah. No.

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Speaker 3: We wrote a paper, the Blackwalk Investment is read a

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Speaker 3: paper back in twenty twenty one called a world shape

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Speaker 3: by supply, and we identified three mega forces. So these

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Speaker 3: are the energy transition, the geopolitical more complicated environment, let's say,

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Speaker 3: and demographics. So demographics, it isn't just China, but China

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Speaker 3: used to add tens even hundreds of millions to workers

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Speaker 3: to the global labor supply. China's workforce is now shrinking

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Speaker 3: by eleven or twelve million every year. So all three

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Speaker 3: of those together, we thought meant that the global supply

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Speaker 3: side of the economy, the supply side of the global economy,

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Speaker 3: was a bit tighter. And what that means is price

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Speaker 3: pressure should be higher, and it means inflation is going

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Speaker 3: to hang around. So that's been our view for a

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Speaker 3: long time. The markets, I think now starting to price

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Speaker 3: that more appropriately in our judgment, and it means for

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Speaker 3: policy it's going to be very hard.

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Speaker 4: To cut rates.

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Speaker 3: So the kind of the rate of excitement that we

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Speaker 3: had back in January seems three lifetimes ago. In January,

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Speaker 3: the market was expecting nearly seven cuts from the FED.

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Speaker 3: That was never our vue. For the reasons I've mentioned.

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Speaker 3: Markets now moved, we would suggest more in line with reality.

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Speaker 3: And actually what's quite interesting is even if the market

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Speaker 3: has adjusted and is now more i guess more hawkish,

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Speaker 3: expecting far fewer cuts, the equity market has continue to

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Speaker 3: do pretty well even in the face of that. Tell

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Speaker 3: with now to your actual question, Madison, who's going to

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Speaker 3: be next? I think everyone's super keen to cut rates,

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Speaker 3: So it's going to be data dependents. So where data

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Speaker 3: is kind of soft enough or disinflationary enough that it

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Speaker 3: gives policymakers the room to cut. I think they want

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Speaker 3: to cut, So the FED, I think want to do

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Speaker 3: one or two. But it's the question is are they

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Speaker 3: going to get the data which gives them the kind

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Speaker 3: of confidence to put it through. And I still think

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Speaker 3: that's an open question. So yes, cutting, I think hiking

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Speaker 3: is very unlikely. They want to cut all over the

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Speaker 3: world because they perceive policy to be very tight or

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Speaker 3: somewhat tight, but the data needs to behave right, the

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Speaker 3: data needs to behave and give us a month or

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Speaker 3: two of kind of encouragement and you can see cuts.

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Speaker 3: But I don't think we're quite there yet, either in

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Speaker 3: this part of the world or in some of the

440
00:20:04,480 --> 00:20:06,359
Speaker 3: bigger markets in the US and elsewhere.

441
00:20:06,440 --> 00:20:08,560
Speaker 1: And I've heard you refer to exactly this point before,

442
00:20:08,560 --> 00:20:11,040
Speaker 1: about the lightning and the thunder and the lag between

443
00:20:11,080 --> 00:20:13,199
Speaker 1: the two. The lightning being the monetary policy and their

444
00:20:13,200 --> 00:20:15,280
Speaker 1: desires to want to cut around the world, but the

445
00:20:15,320 --> 00:20:18,959
Speaker 1: thunder being that actual economic impact on economies. Where are

446
00:20:18,960 --> 00:20:20,399
Speaker 1: you hearing that thunder loudest at that?

447
00:20:20,480 --> 00:20:22,800
Speaker 3: Yes, I think it's a phrase that people were using

448
00:20:22,840 --> 00:20:25,080
Speaker 3: a couple of years ago. Somehows fall another fashion people

449
00:20:25,080 --> 00:20:26,439
Speaker 3: talk about a K shaped economy.

450
00:20:26,440 --> 00:20:27,480
Speaker 4: I don't know if you remember that one.

451
00:20:27,560 --> 00:20:31,439
Speaker 3: So K shaped economy is the idea that people who

452
00:20:31,520 --> 00:20:34,959
Speaker 3: are more interest rate sensitive. So if you've got a mortgage,

453
00:20:35,000 --> 00:20:37,439
Speaker 3: if you've got credit card debt, and so forth, then

454
00:20:37,440 --> 00:20:39,960
Speaker 3: obviously higher rates hurt you. And I think we're seeing that,

455
00:20:40,000 --> 00:20:43,000
Speaker 3: particularly in the US at the moment. The lower end

456
00:20:43,000 --> 00:20:45,160
Speaker 3: of the consumer economy is I think suffering a little

457
00:20:45,200 --> 00:20:47,840
Speaker 3: bit in line with what you'd expect from normal interest rates.

458
00:20:48,119 --> 00:20:50,480
Speaker 3: I think what is surprised, I should say has surprised

459
00:20:50,480 --> 00:20:54,520
Speaker 3: me is the strength of the economy and the consumer overall.

460
00:20:54,920 --> 00:20:56,680
Speaker 3: And I think what I've realized now is that a

461
00:20:56,760 --> 00:20:58,800
Speaker 3: lot of consumers are just not intertrate sensitive.

462
00:20:59,080 --> 00:20:59,520
Speaker 4: If you're a.

463
00:20:59,560 --> 00:21:02,000
Speaker 3: Pensioner, you don't have a mortgage, maybe you've got savings.

464
00:21:02,240 --> 00:21:04,480
Speaker 3: Interest rates going up is good for you. You're getting

465
00:21:04,480 --> 00:21:06,880
Speaker 3: more every month in terms of the interest that you're receiving.

466
00:21:07,160 --> 00:21:09,560
Speaker 3: So what I think is clear in the US and

467
00:21:09,560 --> 00:21:12,920
Speaker 3: maybe elsewhere, is something of a two tier economy where

468
00:21:13,160 --> 00:21:15,119
Speaker 3: if those of us who are unlucky enough to have

469
00:21:15,200 --> 00:21:18,199
Speaker 3: debt are having to pay more on the interest, but

470
00:21:18,240 --> 00:21:20,800
Speaker 3: there's a huge cohort of people who don't have that issue.

471
00:21:20,880 --> 00:21:23,480
Speaker 4: So I think now what I'm seeing is the thunders there.

472
00:21:23,600 --> 00:21:26,840
Speaker 3: The economic consequences of much higher rates is there, but

473
00:21:26,960 --> 00:21:30,760
Speaker 3: it's having a disproportionate impact on those people or sectors

474
00:21:30,880 --> 00:21:33,600
Speaker 3: or companies which have got the debts. But there are

475
00:21:33,640 --> 00:21:35,920
Speaker 3: many parts of the economy actually which are very very

476
00:21:35,920 --> 00:21:38,159
Speaker 3: well to do. So one example, of course, is some

477
00:21:38,200 --> 00:21:40,159
Speaker 3: of the big tech companies in the US. I mean,

478
00:21:40,160 --> 00:21:41,720
Speaker 3: they've almost got more money than they know what to

479
00:21:41,760 --> 00:21:44,400
Speaker 3: do with. So it's not obvious that Munchy policy has

480
00:21:44,480 --> 00:21:47,800
Speaker 3: any impact on them directly in terms of their cash position.

481
00:21:48,160 --> 00:21:50,960
Speaker 3: So policy does work. I think it has had an impact,

482
00:21:51,160 --> 00:21:53,200
Speaker 3: but that's been somewhat muted. I think it's fair to

483
00:21:53,240 --> 00:21:56,560
Speaker 3: say because of the balance sheet strengths. Strength that you've

484
00:21:56,560 --> 00:21:59,760
Speaker 3: seen from certain US companies and certain US households has

485
00:21:59,800 --> 00:22:02,120
Speaker 3: been clear to see. In the last couple of quarters.

486
00:22:02,240 --> 00:22:04,600
Speaker 1: It seems like the lightning was very fleshy and bright,

487
00:22:04,720 --> 00:22:06,520
Speaker 1: yet the thunder hasn't been quite as loud off the

488
00:22:06,560 --> 00:22:06,919
Speaker 1: back of it.

489
00:22:07,000 --> 00:22:07,719
Speaker 2: Is that a fear assumption.

490
00:22:07,960 --> 00:22:08,520
Speaker 4: I think that's fair.

491
00:22:08,560 --> 00:22:10,960
Speaker 3: I think that's right, and I think there are reasons

492
00:22:11,040 --> 00:22:14,840
Speaker 3: for that. I still would be careful, you know, raising

493
00:22:15,440 --> 00:22:17,480
Speaker 3: how can I say, raising rates five hundred basis points

494
00:22:17,560 --> 00:22:21,000
Speaker 3: roughly roughly and thinking there will be no consequences, we

495
00:22:21,040 --> 00:22:23,960
Speaker 3: would think would be a bit bold, bold Minister. But

496
00:22:24,880 --> 00:22:27,199
Speaker 3: definitely it's been muted. It's taken a bit longer to

497
00:22:27,200 --> 00:22:30,080
Speaker 3: play through than we were expecting. That's true enough, and

498
00:22:30,119 --> 00:22:31,480
Speaker 3: I think that is to do with the strength of

499
00:22:31,520 --> 00:22:36,800
Speaker 3: household and corporate corporate balancees. So we would still be watchful,

500
00:22:36,880 --> 00:22:38,920
Speaker 3: don't get too complacent, But there are so many of

501
00:22:38,960 --> 00:22:41,760
Speaker 3: these mega forces which are constructive AI mega force. We've

502
00:22:41,760 --> 00:22:44,000
Speaker 3: talked about a few others that that's been more than

503
00:22:44,080 --> 00:22:46,639
Speaker 3: enough to offset even a five hundred basis point tightening,

504
00:22:46,640 --> 00:22:47,600
Speaker 3: which is quite remarkable.

505
00:22:47,600 --> 00:22:50,720
Speaker 1: Actually, any other macro thoughts that allowed in your head.

506
00:22:50,800 --> 00:22:52,760
Speaker 1: I know that you're fresh coming back from New York

507
00:22:53,000 --> 00:22:55,119
Speaker 1: from a Black Rock and recent Institute meeting, and you

508
00:22:55,119 --> 00:22:58,680
Speaker 1: haven't released those documents yet on what you've come out worth.

509
00:22:58,720 --> 00:23:00,000
Speaker 1: Can you give us an alien sude?

510
00:23:00,080 --> 00:23:00,640
Speaker 4: Yeah, that's right.

511
00:23:00,680 --> 00:23:02,560
Speaker 3: So it's an amazing kind of company to work for.

512
00:23:02,640 --> 00:23:04,760
Speaker 3: You know, the world's largest asset manager by far, and

513
00:23:04,840 --> 00:23:06,520
Speaker 3: a couple of times a year we come together with

514
00:23:06,600 --> 00:23:10,480
Speaker 3: our seventy or eighty most senior investment managers and really

515
00:23:10,480 --> 00:23:12,560
Speaker 3: think about the biggest use of the day. So you're right,

516
00:23:12,600 --> 00:23:15,200
Speaker 3: we've just had that. I'm trying to reflect and think

517
00:23:15,200 --> 00:23:17,960
Speaker 3: about one of my main takeaways. I'd say a couple

518
00:23:18,000 --> 00:23:20,760
Speaker 3: of things. I mean, as we look forward, obviously, November

519
00:23:20,760 --> 00:23:23,520
Speaker 3: the fifth already looms large, the US election coming further

520
00:23:23,560 --> 00:23:26,439
Speaker 3: down the pike. So I think twenty twenty four is

521
00:23:26,480 --> 00:23:28,640
Speaker 3: something like the biggest year in human history in terms

522
00:23:28,680 --> 00:23:30,199
Speaker 3: of a number of people going to the polls.

523
00:23:30,440 --> 00:23:31,520
Speaker 4: India is a big part of that.

524
00:23:31,560 --> 00:23:34,680
Speaker 3: But this geopolitical political risk I think is very important

525
00:23:35,040 --> 00:23:37,760
Speaker 3: and is not going away. So the US China tensions

526
00:23:37,760 --> 00:23:40,160
Speaker 3: are structural in nature. They're going to persist. I actually

527
00:23:40,160 --> 00:23:42,720
Speaker 3: think regardless of who wins in November. On the US side,

528
00:23:42,840 --> 00:23:45,479
Speaker 3: this is two great powers bumping into each other and

529
00:23:45,480 --> 00:23:48,119
Speaker 3: that's something that's going to continue. So that has obvious

530
00:23:48,160 --> 00:23:51,160
Speaker 3: implications for for nation states. Politicians are going to think

531
00:23:51,160 --> 00:23:54,560
Speaker 3: how they have to navigate these new chopia waters. But

532
00:23:54,600 --> 00:23:56,840
Speaker 3: I think that's also true for us as investors. We

533
00:23:56,880 --> 00:24:00,399
Speaker 3: can't just close our eyes to geopolitical political risk. Fortunately,

534
00:24:00,440 --> 00:24:03,440
Speaker 3: that's going to continue to be part of the investment

535
00:24:03,520 --> 00:24:06,720
Speaker 3: landscape for years and decades to come. So exactly how

536
00:24:06,720 --> 00:24:10,320
Speaker 3: we do that, exactly how we navigate the political geoplving environment,

537
00:24:10,359 --> 00:24:13,480
Speaker 3: I think is very important. And of course, as we

538
00:24:13,520 --> 00:24:17,840
Speaker 3: go into the big one later this year, fortunately or unfortunately,

539
00:24:17,840 --> 00:24:19,840
Speaker 3: that's only going to become more front page news. I

540
00:24:19,880 --> 00:24:21,879
Speaker 3: would have thought, and something we as investors need to

541
00:24:21,880 --> 00:24:23,240
Speaker 3: be cognizant of.

542
00:24:23,840 --> 00:24:26,399
Speaker 1: If I look at the black Rock Investment Institute's positions,

543
00:24:26,720 --> 00:24:28,520
Speaker 1: it's still largely neutral.

544
00:24:28,720 --> 00:24:31,320
Speaker 2: It was the same when we spoke last year.

545
00:24:31,400 --> 00:24:34,240
Speaker 1: How difficult is it these days for even Black Rock

546
00:24:34,520 --> 00:24:36,399
Speaker 1: to pick se it's not only in equities but in

547
00:24:36,440 --> 00:24:37,560
Speaker 1: fixed income to allocate.

548
00:24:37,760 --> 00:24:39,960
Speaker 4: That's right, So I guess our big calls.

549
00:24:40,040 --> 00:24:42,159
Speaker 3: We continue to be overweight the US and Japan as

550
00:24:42,200 --> 00:24:46,240
Speaker 3: we as we spoke about earlier. On the fixed income side,

551
00:24:46,240 --> 00:24:51,560
Speaker 3: investment grade we think is a little bit expensive and

552
00:24:52,400 --> 00:24:54,840
Speaker 3: develop market bonds. So we've got a bit more constructive

553
00:24:54,840 --> 00:24:57,080
Speaker 3: of over the last several months.

554
00:24:57,160 --> 00:24:59,119
Speaker 4: But you're right, some of these mega.

555
00:24:58,840 --> 00:25:02,879
Speaker 3: Forces they don't really apply so neatly to a single

556
00:25:02,880 --> 00:25:04,919
Speaker 3: acid class. So the mega force is by definition, if

557
00:25:04,960 --> 00:25:06,680
Speaker 3: you think about geopolitics in the way that we were

558
00:25:06,720 --> 00:25:10,200
Speaker 3: just describing, It's not like you can think about geopolitics

559
00:25:10,200 --> 00:25:12,440
Speaker 3: and say, oh, this means I should be over under

560
00:25:12,640 --> 00:25:13,640
Speaker 3: this specific asset class.

561
00:25:13,640 --> 00:25:14,560
Speaker 4: They're kind of bigger than that.

562
00:25:14,920 --> 00:25:16,720
Speaker 3: So I think one of the implications of the mega

563
00:25:16,760 --> 00:25:20,560
Speaker 3: forces is the need for investors to be much more granular,

564
00:25:20,680 --> 00:25:24,159
Speaker 3: much more specific. It isn't as it was during the

565
00:25:24,160 --> 00:25:26,440
Speaker 3: Great Moderation, that era where we had very low inflation,

566
00:25:26,600 --> 00:25:28,520
Speaker 3: very stable interest rates. It was kind of just an

567
00:25:28,520 --> 00:25:31,760
Speaker 3: everything bull market, right. We didn't need to be so nuanced.

568
00:25:31,800 --> 00:25:37,320
Speaker 3: Now in a more challenging economic, geopolitical policy world were

569
00:25:37,320 --> 00:25:38,840
Speaker 3: as investors think, you're going to have to be a

570
00:25:38,840 --> 00:25:42,479
Speaker 3: bit more granular, a bit more targeted and exactly what

571
00:25:42,520 --> 00:25:46,200
Speaker 3: you want to be owning, so more targeted, and also

572
00:25:46,240 --> 00:25:49,239
Speaker 3: perhaps Madison, more dynamics, so taking decisions a little bit

573
00:25:49,280 --> 00:25:52,800
Speaker 3: more frequently reflecting markets that are more volatile as they

574
00:25:52,800 --> 00:25:55,520
Speaker 3: reflect the more volatile economic and political background.

575
00:25:55,720 --> 00:25:56,959
Speaker 2: Well, because of that, you're a busy man.

576
00:25:57,000 --> 00:25:58,439
Speaker 1: You're only in an Auckland for six hours and you

577
00:25:58,480 --> 00:26:00,000
Speaker 1: speak some of that time with us, So I appreciate

578
00:26:00,040 --> 00:26:01,000
Speaker 1: get your time today been.

579
00:26:00,840 --> 00:26:02,240
Speaker 4: Thank you very much, great to be here. Thank you

580
00:26:02,280 --> 00:26:02,600
Speaker 4: so much.

581
00:26:10,119 --> 00:26:10,600
Speaker 1: Mm hmm