1 00:00:00,120 --> 00:00:03,360 Speaker 1: Let's get to carry. Craig Carry is the global equity 2 00:00:03,400 --> 00:00:06,920 Speaker 1: strategist at JP Morgan Asset Management. He joins from Melbourne. 3 00:00:07,440 --> 00:00:09,799 Speaker 1: Carry thanks for being with us. A lot going on 4 00:00:09,840 --> 00:00:13,640 Speaker 1: in markets. The crypto story has really captivated many people's imagination, 5 00:00:13,920 --> 00:00:16,840 Speaker 1: and among other things, it's created some haven buying in 6 00:00:16,960 --> 00:00:20,120 Speaker 1: US treasuries and that in turn has sent yields much 7 00:00:20,200 --> 00:00:23,159 Speaker 1: much lower. We've got the CPI print tomorrow morning in 8 00:00:23,160 --> 00:00:26,239 Speaker 1: the US. Are you comfortable with rates where they are 9 00:00:26,360 --> 00:00:28,200 Speaker 1: right now? Would you be a buyer of U S 10 00:00:28,200 --> 00:00:31,240 Speaker 1: treasuries on the notion that we have seen some sort 11 00:00:31,280 --> 00:00:35,159 Speaker 1: of peak inflation, the FED maybe adjusting its pace of 12 00:00:35,360 --> 00:00:38,599 Speaker 1: rate hikes to a lower level. Are are you comfortable 13 00:00:38,680 --> 00:00:42,440 Speaker 1: with that where the bond market is right now? I 14 00:00:42,440 --> 00:00:44,280 Speaker 1: think when it comes to the outlook for rights and 15 00:00:44,320 --> 00:00:47,040 Speaker 1: where yields uh, I mean you definitely argue that is 16 00:00:47,080 --> 00:00:49,960 Speaker 1: more likely to be downward pressure on yields in the 17 00:00:50,040 --> 00:00:53,440 Speaker 1: U S. Treasury market than upward pressure given some of 18 00:00:53,479 --> 00:00:56,400 Speaker 1: those safe haven flow concerns and the risk to the 19 00:00:56,440 --> 00:00:59,680 Speaker 1: outlook for the U S economy. Obviously, there's still a 20 00:01:00,000 --> 00:01:03,320 Speaker 1: real uncertainty about where exactly the terminal rate is for 21 00:01:03,360 --> 00:01:05,919 Speaker 1: the FED over the coming year. I mean, they cracked 22 00:01:05,920 --> 00:01:08,880 Speaker 1: open the door to a five percent rate last meeting, 23 00:01:08,920 --> 00:01:11,880 Speaker 1: and they may go higher. And there's still that uncertainty 24 00:01:11,920 --> 00:01:14,880 Speaker 1: as well around just how sticky those core components of 25 00:01:14,920 --> 00:01:18,400 Speaker 1: inflation will be, So it's not entirely impossible to see 26 00:01:18,480 --> 00:01:20,880 Speaker 1: rates move a little bit higher. But I do think 27 00:01:20,920 --> 00:01:24,720 Speaker 1: for us we've been allocating or advocating the investors should 28 00:01:24,720 --> 00:01:27,640 Speaker 1: be looking more towards duration, to increasing that duration from 29 00:01:27,720 --> 00:01:30,240 Speaker 1: large underweights have had for a long time this year, 30 00:01:30,240 --> 00:01:33,319 Speaker 1: because we do see bond markets and core government bonds 31 00:01:33,360 --> 00:01:37,160 Speaker 1: markets now fulfilling a role of both having income and 32 00:01:37,280 --> 00:01:41,080 Speaker 1: offering diversification to portfolios, which is quite frankly what you 33 00:01:41,160 --> 00:01:44,319 Speaker 1: need given the outlook for the uncertain outlook for the 34 00:01:44,400 --> 00:01:47,080 Speaker 1: risk assets out there. So, Carrie, where do you see 35 00:01:47,200 --> 00:01:49,840 Speaker 1: the peak in inflation and in real rates too? I mean, 36 00:01:49,880 --> 00:01:51,840 Speaker 1: I think Barclay's earlier this week that it was kind 37 00:01:51,840 --> 00:01:54,000 Speaker 1: of like pointing at your finger at a dart board, 38 00:01:54,000 --> 00:01:56,480 Speaker 1: which is not probably one investors want to hear when 39 00:01:56,480 --> 00:01:59,960 Speaker 1: they want some more clarity out there. Yeah, the moment 40 00:02:00,000 --> 00:02:02,160 Speaker 1: when they're trying to figure out, like where's the peak 41 00:02:02,160 --> 00:02:04,400 Speaker 1: in inflation or whe's the peak and yields or where's 42 00:02:04,400 --> 00:02:06,160 Speaker 1: the lower and equity market. It's like it's like being 43 00:02:06,160 --> 00:02:08,800 Speaker 1: given directions of saying, take the second left before you 44 00:02:08,800 --> 00:02:11,079 Speaker 1: get to the bridge, without knowing where the bridges. I mean, 45 00:02:11,080 --> 00:02:13,640 Speaker 1: you kind of guessing about where exactly should turn, and 46 00:02:13,680 --> 00:02:16,040 Speaker 1: the risk is that you turned too early. For US, 47 00:02:16,080 --> 00:02:18,520 Speaker 1: I think the outlook for the US inflation is that 48 00:02:18,600 --> 00:02:20,960 Speaker 1: it's peaked, is coming down or do expect the inflation 49 00:02:21,000 --> 00:02:23,000 Speaker 1: to be you know, a few tense lower when it's 50 00:02:23,000 --> 00:02:26,840 Speaker 1: announced later on today in the Australian time, um, And 51 00:02:26,880 --> 00:02:29,799 Speaker 1: I think that will continue it's downward trend. I mean, 52 00:02:29,840 --> 00:02:33,360 Speaker 1: you are seeing indications of some early softening in the 53 00:02:33,400 --> 00:02:35,680 Speaker 1: labor market coming through even though things are still very tight. 54 00:02:36,240 --> 00:02:38,240 Speaker 1: You are seeing the housing markets starting to slower, and 55 00:02:38,240 --> 00:02:41,120 Speaker 1: that will gradually ease some of those shelter costs within 56 00:02:41,160 --> 00:02:44,320 Speaker 1: the inflation basket. Um. But it's about how fast it 57 00:02:44,360 --> 00:02:46,720 Speaker 1: comes down, not where it comes whether it comes down 58 00:02:46,880 --> 00:02:49,280 Speaker 1: and where it actually ends up, and that's the thing 59 00:02:49,280 --> 00:02:52,160 Speaker 1: there is the uncertainty about. And so I think for 60 00:02:52,200 --> 00:02:53,880 Speaker 1: the US at least you can say you've passed the 61 00:02:53,919 --> 00:02:56,080 Speaker 1: peak in that and you can probably say you've passed 62 00:02:56,160 --> 00:02:58,840 Speaker 1: the absolute peak and hawkishness given we do expect the 63 00:02:58,919 --> 00:03:02,040 Speaker 1: size of rad hopes to be less in the coming meetings, 64 00:03:02,040 --> 00:03:05,080 Speaker 1: even if they may move the terminal rate higher in 65 00:03:05,160 --> 00:03:07,480 Speaker 1: other markets like the Australian market or Europe. I mean, 66 00:03:07,520 --> 00:03:09,560 Speaker 1: we're still looking for that peak though that that peak 67 00:03:09,600 --> 00:03:12,560 Speaker 1: inflation is likely to happen uh in the last quarter 68 00:03:12,560 --> 00:03:15,160 Speaker 1: of this year or early into next year, given some 69 00:03:15,320 --> 00:03:17,800 Speaker 1: of the delayed impacts of the feeding through into those economies. 70 00:03:17,800 --> 00:03:19,800 Speaker 1: So I'm listening to your points and I'm trying to 71 00:03:19,880 --> 00:03:23,040 Speaker 1: understand how to get exposured in markets right now. And 72 00:03:23,240 --> 00:03:25,000 Speaker 1: it sounds to me like I want to be in 73 00:03:25,040 --> 00:03:27,160 Speaker 1: the corporate bond market more than I want to be 74 00:03:27,240 --> 00:03:29,640 Speaker 1: in the equity market very quickly thirty seconds or so. 75 00:03:29,960 --> 00:03:32,840 Speaker 1: Safe bet. I think that's true. You want quality and 76 00:03:32,840 --> 00:03:34,639 Speaker 1: your biased and your portfolio, and that does lean to 77 00:03:34,760 --> 00:03:38,640 Speaker 1: high grade corporate bonds where evaluations are still good income 78 00:03:38,680 --> 00:03:40,920 Speaker 1: and you gain defense. We've seen a pretty good start 79 00:03:41,120 --> 00:03:43,920 Speaker 1: to the month for Asian equities, up some five percent. 80 00:03:44,120 --> 00:03:47,480 Speaker 1: Is that something that is driven on fundamentals or are 81 00:03:47,480 --> 00:03:50,000 Speaker 1: we expecting to see, you know, a little bit of 82 00:03:50,080 --> 00:03:52,720 Speaker 1: a pause coming through given we still have the uncertain 83 00:03:52,760 --> 00:03:57,119 Speaker 1: picture in China with them sticking to COVID zero. Well, 84 00:03:57,120 --> 00:03:59,280 Speaker 1: I think some of the movement you've seen in Asia 85 00:03:59,280 --> 00:04:02,640 Speaker 1: obviously has been around the prospect of a reopening in China. 86 00:04:02,760 --> 00:04:05,040 Speaker 1: In terms of the performance, I mean, we have a 87 00:04:05,120 --> 00:04:07,080 Speaker 1: one week gained there last week of a close to 88 00:04:07,080 --> 00:04:11,080 Speaker 1: a ten percent for the MSCI China. I think more broadly, 89 00:04:11,120 --> 00:04:15,040 Speaker 1: you're seeing the impulse of reopening still coming through many 90 00:04:15,080 --> 00:04:18,280 Speaker 1: Asian markets and helping lift domestic demand at a time 91 00:04:18,279 --> 00:04:21,960 Speaker 1: when external demand is being weaker. So the idea that 92 00:04:22,000 --> 00:04:24,680 Speaker 1: the Asian region might be slightly more resilient, particularly the 93 00:04:24,720 --> 00:04:27,279 Speaker 1: southern nations to some of the weaknesses happening in the 94 00:04:27,279 --> 00:04:30,040 Speaker 1: global economy and some of the weakness you might see 95 00:04:30,040 --> 00:04:32,880 Speaker 1: in the North Asian economies like China, Taiwan and Korea 96 00:04:33,000 --> 00:04:36,599 Speaker 1: from the global good cycle slowing down is helping lift 97 00:04:37,360 --> 00:04:39,320 Speaker 1: the markets here relative to the rest of the world. 98 00:04:39,800 --> 00:04:42,320 Speaker 1: We're going to have a new premier come March. This 99 00:04:42,440 --> 00:04:47,400 Speaker 1: is Lee ka Chiang, Um Lee Chian. I'm sorry, sometimes 100 00:04:47,440 --> 00:04:52,120 Speaker 1: my opinion gets a little rusty. Um. Are you heartened 101 00:04:52,160 --> 00:04:56,800 Speaker 1: by this? This movement towards maybe uh less liberalism on 102 00:04:56,839 --> 00:04:59,560 Speaker 1: the part of Beijing or maybe are you're more concerned 103 00:04:59,600 --> 00:05:03,159 Speaker 1: about it. But then when it comes to the policy 104 00:05:03,160 --> 00:05:06,000 Speaker 1: decisions from China, we're looking for two things. Obviously, we've 105 00:05:06,000 --> 00:05:08,239 Speaker 1: had the National People's Congress, which is sort of outlining 106 00:05:08,279 --> 00:05:10,919 Speaker 1: the longer term goals, and there wasn't a huge difference 107 00:05:10,920 --> 00:05:13,320 Speaker 1: there between what we've heard before. I think what we're 108 00:05:13,320 --> 00:05:15,760 Speaker 1: really looking for is how we might see over the 109 00:05:15,760 --> 00:05:17,840 Speaker 1: next couple of months when we get all these key 110 00:05:17,880 --> 00:05:20,359 Speaker 1: meetings around their short term policies, when it comes to COVID, 111 00:05:20,360 --> 00:05:22,479 Speaker 1: when it comes to reopening, when it comes to some 112 00:05:22,560 --> 00:05:24,440 Speaker 1: of those regulatory hid ones have been in the past, 113 00:05:24,520 --> 00:05:27,159 Speaker 1: and how they're changing really to lift sentiment both for 114 00:05:27,240 --> 00:05:31,480 Speaker 1: consumers and China, for for companies and obviously for investor sentiment. 115 00:05:31,720 --> 00:05:34,480 Speaker 1: We do see the long run potential in China being 116 00:05:34,960 --> 00:05:38,080 Speaker 1: very huge. We do see the rotation towards a lot 117 00:05:38,080 --> 00:05:40,920 Speaker 1: of those things around technology and that set sustainability being 118 00:05:41,000 --> 00:05:43,960 Speaker 1: quite key investment themes. But again it's just the sentiment 119 00:05:44,000 --> 00:05:46,080 Speaker 1: fact that it's getting in the way at the moment. Obviously, 120 00:05:46,440 --> 00:05:49,479 Speaker 1: valuations have become much more favorable over the course of 121 00:05:49,520 --> 00:05:52,320 Speaker 1: this year. It's all about the timing of the reopening. 122 00:05:52,360 --> 00:05:54,000 Speaker 1: I guess in China because it does seem as well 123 00:05:54,000 --> 00:05:56,640 Speaker 1: that they're trying to prep the population too. So even 124 00:05:56,680 --> 00:05:58,520 Speaker 1: if you do see some kind of a timeline after 125 00:05:58,560 --> 00:06:01,320 Speaker 1: the NPC, is that still taken six months or so. 126 00:06:01,480 --> 00:06:02,960 Speaker 1: But it's a trade you don't want to be behind. 127 00:06:03,040 --> 00:06:05,120 Speaker 1: What kind of rally would you expect to see when 128 00:06:05,120 --> 00:06:09,120 Speaker 1: we do get official confirmation. Look back to the rally 129 00:06:09,160 --> 00:06:10,600 Speaker 1: you had earlier in the year when you hit the 130 00:06:10,640 --> 00:06:13,360 Speaker 1: in the shore reopening, the market jump back very sharply. 131 00:06:14,400 --> 00:06:16,280 Speaker 1: You know, I not performed the same this time. I 132 00:06:16,360 --> 00:06:18,320 Speaker 1: still we still have the concerns and they overhang from 133 00:06:18,320 --> 00:06:20,599 Speaker 1: the property market, the deleveraging that still has to happen 134 00:06:20,640 --> 00:06:24,960 Speaker 1: there um. And again, while you're seeing some stabilization there, 135 00:06:24,960 --> 00:06:28,520 Speaker 1: we don't expect you know, that to continue in diffinitely 136 00:06:28,600 --> 00:06:31,520 Speaker 1: because of the help from the support from the government 137 00:06:31,520 --> 00:06:34,080 Speaker 1: and the fact that you are seeing projects that underway 138 00:06:34,160 --> 00:06:36,680 Speaker 1: being completed rather than new projects being started. So I 139 00:06:36,720 --> 00:06:38,560 Speaker 1: think that's still something that may may be a word 140 00:06:38,560 --> 00:06:40,440 Speaker 1: of caution, but we would accept the market to come 141 00:06:40,480 --> 00:06:42,719 Speaker 1: back up. And I think more broadly, in the global 142 00:06:42,760 --> 00:06:45,400 Speaker 1: economic context, as we think about weakness and europe witness 143 00:06:45,400 --> 00:06:48,120 Speaker 1: in the US, you're really looking towards China as being 144 00:06:48,160 --> 00:06:49,640 Speaker 1: you know it can there be the spark that sort 145 00:06:49,640 --> 00:06:52,599 Speaker 1: of reignites for a sentiment around the world or at 146 00:06:52,640 --> 00:06:56,039 Speaker 1: least the APACK region more broadly. Well, that was my 147 00:06:56,080 --> 00:06:58,600 Speaker 1: next question. If you look at some of the satellite markets, 148 00:06:58,600 --> 00:07:01,200 Speaker 1: whether it's a South Korea or Japan or where you 149 00:07:01,200 --> 00:07:05,080 Speaker 1: are in Australia, I mean, are you favoring one market 150 00:07:05,160 --> 00:07:09,720 Speaker 1: over another? We are looking towards the more Southeast Asian 151 00:07:09,800 --> 00:07:12,680 Speaker 1: nations given that domestic demand that's coming through and again 152 00:07:12,720 --> 00:07:15,160 Speaker 1: those head ones in the global good cycle not being 153 00:07:15,240 --> 00:07:19,200 Speaker 1: quite as severe compared to say Taiwan and Korea, UM. 154 00:07:19,400 --> 00:07:22,120 Speaker 1: And then locally in Australia, obviously you've got a market 155 00:07:22,200 --> 00:07:24,800 Speaker 1: that we're an economy that's being much more resilient to 156 00:07:24,640 --> 00:07:26,840 Speaker 1: the to the slowdown we've seen elsewhere. We've still got 157 00:07:26,880 --> 00:07:30,480 Speaker 1: good commodity prices which are helping deliver incomes through dividends 158 00:07:30,480 --> 00:07:33,280 Speaker 1: to households and that defensive bias that comes with that 159 00:07:33,360 --> 00:07:36,080 Speaker 1: as a market. So I think definitely within the region, 160 00:07:36,160 --> 00:07:38,800 Speaker 1: I think Asia Southeast Asians looking a little bit bitter 161 00:07:38,840 --> 00:07:41,480 Speaker 1: to us, and again Australia has some good potential coming 162 00:07:41,520 --> 00:07:44,520 Speaker 1: through and valuations here are very attractive as well. And 163 00:07:44,600 --> 00:07:46,480 Speaker 1: just a final quick word on Australia. When do we 164 00:07:46,560 --> 00:07:51,240 Speaker 1: see peak rates from the r b AH our view 165 00:07:51,320 --> 00:07:53,040 Speaker 1: is probably sooner than many others. We think, you know, 166 00:07:53,080 --> 00:07:56,360 Speaker 1: you get another based another twenty five basis points this 167 00:07:56,440 --> 00:07:58,320 Speaker 1: year and then maybe one more into the early part 168 00:07:58,360 --> 00:08:00,600 Speaker 1: of next year, and then you'll be seeing a relatively 169 00:08:00,640 --> 00:08:03,640 Speaker 1: extended pause as we look for the change in mortgage 170 00:08:03,680 --> 00:08:06,440 Speaker 1: rates to actually feed through the household concert consumer sector, 171 00:08:06,960 --> 00:08:09,680 Speaker 1: and some of those concerns offshore maybe staying to bite 172 00:08:09,720 --> 00:08:11,640 Speaker 1: here as well. So we don't think we're too far 173 00:08:11,680 --> 00:08:13,080 Speaker 1: off in terms. I think you've got a peek in 174 00:08:13,120 --> 00:08:15,960 Speaker 1: the cash right here in Australia. Alright, music to my 175 00:08:16,000 --> 00:08:18,160 Speaker 1: ears as a mortgage holder. Thank you. Carrie Craig, global 176 00:08:18,200 --> 00:08:20,920 Speaker 1: equity strategist at GP Morgan Asset Management, on the line 177 00:08:20,920 --> 00:08:23,640 Speaker 1: from Melbourne for us here on Bloomberg Daybreak Asia