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Speaker 3: Joining us now on the program is Ryan Wong, us
Speaker 3: economist at HSBC. So, Ryan, thank you for taking out
Speaker 3: some time to be with us. So we had core
Speaker 3: goods prices increasing zero point two percent month on month
Speaker 3: in the latest CPI report, and it had investors a
Speaker 3: little bit nervous. In fact, though core goods prices, as
Speaker 3: you point out, I've risen in only two of the
Speaker 3: past sixteen months, and we got the PPI that was flat.
Speaker 3: So can we set aside inflation for the moment or
Speaker 3: still have to be right on top of it?
Speaker 4: Well, thanks for havingeing me. That's right.
Speaker 5: The CPI data coming out of the United States, Actually
Speaker 5: the most recent figures are a little bit the opposite
Speaker 5: of what we had seen in previous months. So I
Speaker 5: think a lot of the progress on disinflation this year
Speaker 5: has been related to goods prices. Actually, goods prices have
Speaker 5: actually been falling for most of the past year, and
Speaker 5: it's the services side that has been stickier, has been
Speaker 5: more elevated, both in terms of housing inflation and also
Speaker 5: non housing services. But as I said, the latest set
Speaker 5: of numbers were a little bit the opposite, goods prices
Speaker 5: rising a little bit. I wouldn't read too much into
Speaker 5: that single reading. We'll have to watch it in the
Speaker 5: months ahead. But it was actually services inflation as well,
Speaker 5: that is still overall I think, holding up inflation at
Speaker 5: a higher level. So I mean to answer your question,
Speaker 5: the bottom line is that core inflation, especially if you
Speaker 5: look at the measure of the FED focuses on the
Speaker 5: most so called core PCE inflation, it slowed from over
Speaker 5: five percent two years ago to less than three percent today.
Speaker 4: I expect it all actually.
Speaker 5: Just bounce around where it is for the rest of
Speaker 5: this year, maybe this two point six to two point
Speaker 5: eight percent range, just below that three percent level.
Speaker 2: So also last Friday, we learned from the University of
Speaker 2: Michigan the consumer centiment unexpectedly fell for the first time
Speaker 2: in three months. Maybe you don't believe a lot in
Speaker 2: the University of Michigan data. But I think perhaps what's
Speaker 2: going to be more important for markets in the week
Speaker 2: ahead is the New York Fed survey on consumer expectations
Speaker 2: for the month of September. How are you understanding the
Speaker 2: American consumer right now?
Speaker 4: Yeah, it's very interesting how you point that out.
Speaker 5: I mean, look, I think all of the consumer surveys
Speaker 5: do tell us something, right. I think it's a little
Speaker 5: bit too to just looking at the surface to say
Speaker 5: we just throw out this number because it doesn't make sense.
Speaker 4: I think the one commonality.
Speaker 5: Across all the consumer surveys is that, indeed the high
Speaker 5: inflation of recent years has weighed heavily on sentiment. And
Speaker 5: of course many have said it, but it's certainly the
Speaker 5: case that even though inflation rates have declined, the high
Speaker 5: prices continue to strain household budgets, and understandably, you know,
Speaker 5: it may take more years to come before consumers truly
Speaker 5: feel comfortable with just how high price levels have risen
Speaker 5: over recent years. So I think that's really, on the
Speaker 5: one hand, something you can't really get passed. On the
Speaker 5: other hand, for a federal reserve that's trying to control
Speaker 5: future inflation, not necessarily trying to get prices to fall
Speaker 5: back to where they were prior to the pandemic. Well,
Speaker 5: as you say, those inflation expectations measures do matter a lot,
Speaker 5: and on that basis, actually the Michigan survey still shows
Speaker 5: relatively stable inflation expectations, whether on kind of a one
Speaker 5: year horizon or even on a longer five to ten
Speaker 5: year horizon.
Speaker 3: Growth is pretty firm. The now casts from Atlanta, the
Speaker 3: Atlanta FED three point two to one percent. The last
Speaker 3: couple of quarters have been around three percent. And so
Speaker 3: that stimulus that's still coming into the economy, and that
Speaker 3: means that you know, employment could get better from here,
Speaker 3: not not worse from here. So you've got a pretty
Speaker 3: strong economy. Do you see the economy as actually improving
Speaker 3: here or weakening? And then I guess you know, part
Speaker 3: of that question is what's the impact on inflation?
Speaker 4: Yeah, well that's absolutely right.
Speaker 5: So, I mean for the last few years and really
Speaker 5: continuing through this year, the GDP part of the economic
Speaker 5: data has continued to surprise. The upside in the United
Speaker 5: States over on a year of a year basis real
Speaker 5: GDP growth.
Speaker 4: Of over three percent.
Speaker 5: As you point out, the Atlanta Fed now cast doesn't
Speaker 5: look like there's going to be too much of a
Speaker 5: slowdown in the third quarter, and so that raised some
Speaker 5: questions about, well, how does the strong GDP relate to
Speaker 5: some of the new concerns about the job market with
Speaker 5: slower jobs growth, the drift hire and the unemployment rate
Speaker 5: over the past year. But then you look at the
Speaker 5: most recent monthly jobs report and it contradicted some of
Speaker 5: those fears. The unemployment rate has actually fallen for the
Speaker 5: last two months, and so you know, I think markets
Speaker 5: are concerned that if you look into the future, you
Speaker 5: could have this self reinforcing downturn, let's say, slower jobs growth,
Speaker 5: slower age growth, leading to less.
Speaker 4: Spending down the road.
Speaker 5: But then every few months we seem to get some
Speaker 5: data that actually contradicts that type of fear and instead suggests, well,
Speaker 5: actually incomes are still growing, maybe not quite as quickly
Speaker 5: as they were two years ago, but still presumably strong
Speaker 5: enough to keep spending going for a while longer. So
Speaker 5: I don't think it's actually going to get any easier
Speaker 5: to analyze the situation. Obviously, when we look forward to
Speaker 5: the next job's report, we're going to have to be
Speaker 5: dealing with how to interpret weather effects.
Speaker 4: But you know, I think you continue.
Speaker 5: To get a pretty interesting economic picture, and not necessarily
Speaker 5: one that signals extreme weakness ahead.
Speaker 2: So where does that leave the FED between Now, let's say,
Speaker 2: in the end of the year, is it right to
Speaker 2: assume that we're going to get another fifty basis points
Speaker 2: in total rate cuts.
Speaker 4: I think that is the most likely.
Speaker 5: Our own forecast is that the FED will cut its
Speaker 5: policy rate by twenty five basis points at each of
Speaker 5: the next six policy meetings. So that's the two remaining
Speaker 5: this year to your point in November December, the first
Speaker 5: four meetings of twenty twenty five. And in a way,
Speaker 5: as I alluded to, I do think the economic data
Speaker 5: in the US will be confusing over the month ahead.
Speaker 4: Obviously, we have a little over three weeks to go
Speaker 4: to the US.
Speaker 5: Election, and I think it does tend to mean that
Speaker 5: most likely the FED will follow through with its kind
Speaker 5: of baseline expectation. At least that's what VET chair Palell
Speaker 5: told us a couple of weeks ago in terms of
Speaker 5: twenty five base point moves at upcoming meetings. You know,
Speaker 5: if the economic data broadly come in as anticipated.
Speaker 3: We had the inflation deflation numbers in China kind of disappointing,
Speaker 3: particularly PPI minus two point eight percent, worse than the
Speaker 3: estimate of two six And so you wonder whether China,
Speaker 3: at least at the moment, is still exporting deflation to
Speaker 3: a place like the United States. So interested to get
Speaker 3: your thoughts on that. And then you know, usually stimulus
Speaker 3: does work at some point. So are we going to
Speaker 3: be seeing that change with China's impact on the US
Speaker 3: citnytime soon?
Speaker 5: Well, I think at a broad level, like to your point,
Speaker 5: it does matter greatly. Some economies are looking for inflation
Speaker 5: to come down and other economies looking for inflation to
Speaker 5: pick up. So it does highlight divergences across global trends.
Speaker 5: I mean, I think in the broad sense, and to
Speaker 5: the point that we were talking about earlier, goods price
Speaker 5: inflation in the United States has declined significantly. I wouldn't
Speaker 5: attribute that, you know, fully to the effects specifically of
Speaker 5: let's say, output from China, but I think in the
Speaker 5: global context that's definitely part of the story. Also, we
Speaker 5: have to consider foreign exchange effects in the United States.
Speaker 5: Of course, you know, a wide variety of exchange rates
Speaker 5: matter for import costs and the bottom line, as all
Speaker 5: of those have been relatively contained over the past year,
Speaker 5: and so you know, you basically you saw goods prices
Speaker 5: surge to extraordinarily high levels a couple of years ago,
Speaker 5: with auto prices surging, household goods prices surging, and all
Speaker 5: of that really has retreated over the past year, notwithstanding
Speaker 5: the most recent monthly data.
Speaker 2: So Ryan, in the week ahead, we've got some Fed speak.
Speaker 2: Chris Waller is speaking along with Neil Keshkari and Mary Daily,
Speaker 2: I think is on that list very quickly thirty seconds.
Speaker 2: How does the FED go about managing market expectations right now?
Speaker 4: Look, I think markets are in a pretty good place.
Speaker 5: They are mostly pricing in that twenty five base point
Speaker 5: rate cut that we're anticipating for November. I do think
Speaker 5: a lot of the rhetoric is going to be shifting
Speaker 5: to how to interpret the jobs data to come over
Speaker 5: the weeks ahead, not to overreact to information that will
Speaker 5: certainly be impacted by weather effects. And so I think
Speaker 5: it's going to be an attempt to be reassuring the markets,
Speaker 5: to basically try to send the signal of not overreacting
Speaker 5: to one number over the week's ahead.
Speaker 3: Thank you so much, Ryan, very clear, very good picture
Speaker 3: of understanding coming from you. Bryan Loong, us economist HSBC.
Speaker 3: Joining us now in our studios in Hong Kong is
Speaker 3: mid min Low Bloomberg TV.
Speaker 6: China correspondent who.
Speaker 3: Takes a close look at the weekend developments at the
Speaker 3: Ministry of Finance. So bottom line, mid men, is we
Speaker 3: didn't get the two trillion you on, the two hundred
Speaker 3: and eighty three billion dollars that had been expected somewhere
Speaker 3: actually even thinking we might get more. So it's pretty
Speaker 3: clear policymakers are showing continued reticence here over any kind
Speaker 3: of shock at all, and they're just kind of tinkering
Speaker 3: at it. But you know, it may be too much
Speaker 3: to say that there would be vast disappointment.
Speaker 7: Your thoughts, well, I would say that two trillion un
Speaker 7: and fiscal stimulus is still on the table because remember
Speaker 7: the last time we chatted, I told you that any
Speaker 7: revision to the bus school budget deficit, as well as
Speaker 7: any new additional new bonds above this year's quarter will
Speaker 7: have to be approved by the legislature. So the legislature
Speaker 7: is going to meet likely in late October. The NPC
Speaker 7: standing Committee meeting, that's when we may be able to
Speaker 7: hear at actual number. So this time we just heard
Speaker 7: kind of hints of measures to come without a number
Speaker 7: on it. But it's still, I guess, in some ways
Speaker 7: in line with market expectations. I think in terms of
Speaker 7: the details, we have to wait a little bit longer.
Speaker 2: So you don't think there's a gap between what the
Speaker 2: market is expecting and what the government is saying right now, I.
Speaker 7: Think there is. There are some mixed reactions. I think
Speaker 7: the biggest gap is the fact that the m ORF
Speaker 7: briefing really disappointed in terms of lack of any stimulus
Speaker 7: on the demand side, because the only cash handout that
Speaker 7: they mentioned was doubling the quarta of scholarships for college
Speaker 7: students and increasing financial aid to them, and this is
Speaker 7: nothing to the extent of the scale that markets had
Speaker 7: been expecting. A lot of the measures were targeted at
Speaker 7: the property sector and at tackling local government debt, so
Speaker 7: that demand side stimulus is what's missing here.
Speaker 3: Yeah, I know there appears to be consensus on this
Speaker 3: that there hasn't been enough to boost consumption, but actually, mean, men,
Speaker 3: if you think about it and you look back over
Speaker 3: the past twenty odd years, Domestic consumption has not been
Speaker 3: a big driver in China's economic growth.
Speaker 6: It's been a driver, but not the biggest. Investment and
Speaker 6: trade has been, So I.
Speaker 3: Wonder whether we should kind of rethink a little bit
Speaker 3: about where they're targeting fresh money.
Speaker 7: Yeah, it is not a big driver, but I guess
Speaker 7: if you compare to pre pandemic times in terms of
Speaker 7: the act activity data when it comes to retail sales,
Speaker 7: the numbers that we are seeing now is still very weak.
Speaker 7: And if you look at the GDP deflator, that's down
Speaker 7: in negative territory for five straight months now. We had
Speaker 7: the CPAI data that came out over the weekend, all
Speaker 7: missed expectations, whether you're talking about consumer prices or producers prices,
Speaker 7: and call inflation is now just zero point one. It's
Speaker 7: the weakest since February twenty twenty one. So I think
Speaker 7: there is still an argument for the weakness and domestic consumption.
Speaker 6: That stential loss is really rather than like superstimulus.
Speaker 7: Right.
Speaker 2: Yeah, but if you have a protracted cycle of deflation
Speaker 2: in China, which is clearly at work right now, I mean,
Speaker 2: spending could only be driven further to lower levels and investment.
Speaker 7: Also, Yeah, that's right, and right now, I just want
Speaker 7: to draw your attention back to some of the other
Speaker 7: measures they're talking about in terms of the spending by
Speaker 7: local governments, because one of the big dregs on the
Speaker 7: economy as well aside from consumption, is also the fact
Speaker 7: that fiscal spending was very low this year. It has
Speaker 7: shrunk by three percent in the first eight months of
Speaker 7: this year. And even though we're not hearing additional sizes
Speaker 7: of additional new bonds, but some analysts like Stanchart Thing
Speaker 7: Shunk from Stanchart is saying that it's still quite significant
Speaker 7: that they're widening the usage of local government bonds to
Speaker 7: allow those funds to be used for buying up houses
Speaker 7: because one of the reasons for the lag in fiscal
Speaker 7: spending is also because there's been a lack of suitable projects.
Speaker 7: Infrastructure has been so saturated that there are a lot
Speaker 7: of idle funds sitting around that are not being spent.
Speaker 7: So Stanchat is saying that this could unleash about one
Speaker 7: trillion yen of idle funds if they widen the usage
Speaker 7: of these local.
Speaker 3: Government and that would be good for the developers because
Speaker 3: we're talking about these local special bonds would enable the
Speaker 3: local governments to buy unsold homes, homes around the market
Speaker 3: that are empty, and so this would eventually get turned
Speaker 3: into subsidized housing, right, and that's in need as well.
Speaker 7: Yeah, so this is a little bit complicated. So some
Speaker 7: editorsts are saying that yes, it's a good thing because
Speaker 7: it could speed up that housing buyback programmed. But although
Speaker 7: it provides fresh funding, it doesn't solve the lack of
Speaker 7: profit incentives because in some cases, the yield that you
Speaker 7: get from these subsidized rental housing sometimes is lower than
Speaker 7: the funding cost for you know, for the loans that
Speaker 7: you are taking out to buy these STU drag. Yeah,
Speaker 7: so that's the reason why the take up rate has
Speaker 7: been very low so far.
Speaker 2: Well, I was just looking for any help that the
Speaker 2: PBOC might be able to apply at this point or
Speaker 2: is that pretty much off the table right now? It's
Speaker 2: all on the part of the government and fiscal spending.
Speaker 4: Yeah.
Speaker 7: I think right now it is going to come down
Speaker 7: to implementation of whatever PBOC has announced and fiscal spending.
Speaker 7: I think we'll have to wait until late October when
Speaker 7: the National People's Congress Standing Committee meets. They might give
Speaker 7: us the size of that fiscal stimulus at that point.
Speaker 7: And also remember we have the forward guidance for next
Speaker 7: year the Ministry of Finance it there is still relatively
Speaker 7: large room to raise fiscal deficit. I think that's also
Speaker 7: very key.
Speaker 3: Yeah, all right, mim men, thank you. Mimn Low Bloomberg
Speaker 3: TV China correspondent Carlos Casanova joins US senior Asia economist
Speaker 3: for UBP for discussion about global economics and markets.
Speaker 6: Carlos, thanks very much for coming.
Speaker 3: In no doubt you've had some time to go through
Speaker 3: the Ministry of Finance briefing on Saturday, and the number
Speaker 3: is on inflation and deflation that we got yesterday from China.
Speaker 6: What's your take on where we're at at the moment.
Speaker 1: Well, we are setting certainly witnessing a deceleration in economic
Speaker 1: activity and we are likely going to see that reflect
Speaker 1: in the Q three numbers later this week. Not surprisingly,
Speaker 1: as a result of that, we have seen a much
Speaker 1: more proactive government in terms of that policy stimulus, with
Speaker 1: the focus still being on those monetary policy measures that
Speaker 1: were announced at the end of September. There was a
Speaker 1: lot of I guess, hype and buzz around the monetary
Speaker 1: policy measures, and investors were sort of hoping that that
Speaker 1: would mean that fiscal would would follow suit, making this
Speaker 1: somewhat of you know, whatever it takes moment for China. Unfortunately,
Speaker 1: we don't think that we are headed in that direction.
Speaker 1: It was never we never expected the Ministry of Finance
Speaker 1: to deliver the specific details during the weekend. The reason
Speaker 1: for that is, of course Congress needs to approve any
Speaker 1: additional spending. We do think that additional you know, new
Speaker 1: money will will come. But given that the Ministry of
Speaker 1: Finance highlighted the main policy tools and the main themes
Speaker 1: that they're going to focus on. So they're going to
Speaker 1: do bond issuance and special bondishanes to cover things like
Speaker 1: a dead swapped for local governments, you know, finance some
Speaker 1: of that, you know, the stocking of housing inventory, and
Speaker 1: also recapitalize the bank so that they can lend more.
Speaker 1: That really suggests to me that we are looking at
Speaker 1: an ongoing effort at an ongoing reflation targeting some of
Speaker 1: the bigger structural elements, hoping to sort of slow down
Speaker 1: that pace of deceleration that we are going to see
Speaker 1: this week. More than sort of whatever it takes moment
Speaker 1: and China sort of making a U turn in terms
Speaker 1: of where its priorities lie. So I think market still
Speaker 1: needs to digest that a little bit and we're going
Speaker 1: to see very volatile performance this week as a result.
Speaker 2: So we had the inflation data over the weekend, PPI
Speaker 2: down for a twenty fourth straight month. I mean, the
Speaker 2: writing has been on the wall for some time. The
Speaker 2: question is whether or not authorities in Beijing have delayed,
Speaker 2: and whether that's going to make this situation so much worse.
Speaker 1: My sort of reading on the inflation numbers, of course,
Speaker 1: CPI was extremely flat, and that's in spite of a
Speaker 1: pickup in vegetable prices due to adverse weather. But more
Speaker 1: worrying than that open one percent CPI number is the
Speaker 1: fact that PPI deflation worsened to minus two point eight percent.
Speaker 1: Not only is it twenty four straight months of contraction,
Speaker 1: but also the pace of contraction accelerated, whereas it should
Speaker 1: have been gradually recovering, So deflationary pressures continue to persist.
Speaker 1: I think the government, you know, has been very slow
Speaker 1: to react. Our expectation is that they will deliver some
Speaker 1: figures around the end of the month when the National
Speaker 1: People's Congress Standing Committee meets.
Speaker 8: Because they have to approve it. But we will have
Speaker 8: to end.
Speaker 1: We will have to wait until March next year, you know,
Speaker 1: for the Congress to ratify the targets for twenty twenty five,
Speaker 1: and so it's going to take longer than expected.
Speaker 3: Most of the data that we saw in terms of
Speaker 3: deflation and inflation was for the month of September, and
Speaker 3: we didn't get the announcement from the Central Bank and
Speaker 3: other broad package of measures until September rout around September
Speaker 3: twenty second, twenty third, and since since that time, the
Speaker 3: CSI three hundred has gained twenty one percent from the
Speaker 3: close on September twenty third, So it's even though we
Speaker 3: lost three point three percent last week, it's still higher.
Speaker 3: So it seems like you're a little disappointed in the
Speaker 3: slow approach, but maybe from the policymakers standpoint, they feel
Speaker 3: like this is this is a measured move and the
Speaker 3: wise one correct.
Speaker 1: So the first of all, I don't think policy makers
Speaker 1: really pay that much attention to the stock market. I
Speaker 1: think that the stock market rally will also have a
Speaker 1: relatively muted impact on consumers in China because Chinese households
Speaker 1: are not exposed to equities in the same way that
Speaker 1: US households are. About sixty or seventy percent of household
Speaker 1: wealth in China's linked to real estate investments, so they're
Speaker 1: stabilizing the real estate market. I think it is a
Speaker 1: priority over stabilizing the stock market, but they don't completely
Speaker 1: ignore it, and they are not looking to engineer a.
Speaker 8: Massive, you know, bubble.
Speaker 1: They would prefer something similar to what we saw last year,
Speaker 1: which was a gradual pickup inequities over the span of
Speaker 1: three or four months, sort of helping to boost sentiment overall,
Speaker 1: rather than a situation like what we saw where you know,
Speaker 1: equity is rally forty percent in two weeks, still best
Speaker 1: performers in Asia year to date, but then the pullback
Speaker 1: is much more severe as a result of the policies
Speaker 1: being incremental.
Speaker 2: Are we understating the risks here? If Paijing doesn't get
Speaker 2: this right now, the dire situation that the overall Chinese
Speaker 2: economy could fall into.
Speaker 1: I think it's a delicate equilibrium. So Paijing wants to
Speaker 1: have enough growth to facilitate structural reforms, but they are
Speaker 1: not looking to go back to you know, the roar
Speaker 1: in two thousands with nominal GDP growth around ten percent,
Speaker 1: And I think that's something that the market doesn't really understand.
Speaker 1: So what would it take for China to go back
Speaker 1: to those numbers?
Speaker 7: What?
Speaker 8: You know, what does it take for that moment? In China?
Speaker 1: The local government financing vehicle debt alone is worth moti
Speaker 1: like many trillion un more than the stimulus packages that
Speaker 1: have been floated around one to three trillion UN or
Speaker 1: around one point five to maximum two percent of GDP.
Speaker 1: In order for them to sort of deliver, they would
Speaker 1: have to do upwards of five percent, maybe ten percent
Speaker 1: of DP worth of fiscal stimulus. That is not going
Speaker 1: to happen. And so I think one thing the market
Speaker 1: needs to sort of wrap it get its head around
Speaker 1: is the fact that we are not returning to high
Speaker 1: nominal GDP growth rates. This is only facilitating enough growth
Speaker 1: for that structural reform process to pan out. We still
Speaker 1: need to see restructuring in the banking sector, and we
Speaker 1: still need to see restructuring in the real estate sector.
Speaker 3: Yeah, a lot of work to do. Let's switch to
Speaker 3: Singapore for a moment. We heard from the Monetary Authority
Speaker 3: of Singapore they would maintain the slope with and center
Speaker 3: of the currency band, so as keeping monetary policy steady.
Speaker 3: We also had economic growth accelerating in the third quarter.
Speaker 3: It was a pretty healthy number, up four point one
Speaker 3: percent year on year and advancing two point one percent
Speaker 3: in the three months through September. So Southeast Asia has
Speaker 3: been pretty solid here of late. How does it stack
Speaker 3: up in terms of growth in the region.
Speaker 1: I think we are still observing high growth rates around
Speaker 1: as in in general. You know, low inflation environment and
Speaker 1: expectations of policy rate cuts definitely help with a macro outlook.
Speaker 8: For the region.
Speaker 1: Specifically with Singapore, I think we will witness deceleration and activity.
Speaker 1: Singapore is a small export oriented economy and so that
Speaker 1: narrative around soft landing in the US should translate into
Speaker 1: weaker export performance over the coming months. The GDP data
Speaker 1: is backward looking, so we definitely did not see weak
Speaker 1: exports over the third quarter period, maybe towards the end,
Speaker 1: but certainly not at the beginning, so that narrative hasn't
Speaker 1: fully materialized. But we do expect that the external side
Speaker 1: will be more of a drag on Singapore. But it's
Speaker 1: possibly a good sign for domestic consumption in twenty twenty five.
Speaker 1: If it entails a policy shift by the Monetary Authority
Speaker 1: of Singapore current environment, they probably have to wait a
Speaker 1: little bit, but we do expect that it's going to
Speaker 1: come in twenty twenty five.
Speaker 2: I was talking to a friend over the weekend with
Speaker 2: a condominium outside of Soul. Dramatic come cliin in the
Speaker 2: value of the property. So I guess the real estate
Speaker 2: market in South Korea is starting to soften to the
Speaker 2: degree to which the Bank of Korea was confident in
Speaker 2: lowering interest rates right.
Speaker 8: Correct, correct. South Korea was.
Speaker 1: The latest central bank in Asia to join the easing cycle,
Speaker 1: albeit very cautiously, with a twenty five basis point way cut.
Speaker 1: Main reason for that is, you know, inflation below target
Speaker 1: at one point nine percent.
Speaker 8: I think it was.
Speaker 1: But of course in South Korea the debate continues to
Speaker 1: be around that speculation in the real estate market, and
Speaker 1: we have seen a marked correction in that area. So
Speaker 1: Bank of Korea should feel comfortable to continue easing.
Speaker 3: We've got the policy address coming up here in Hong Kong.
Speaker 3: The Chief executive wants to make this a hub going forward.
Speaker 6: What are your thoughts on Hong Kong In short, term.
Speaker 1: I think Hong Kong is exposed to know the business
Speaker 1: cycle in China, so things will be a little bit
Speaker 1: more sluggish. In Hong Kong. We do see a lot
Speaker 1: of exposure to so the recent rally probably might help
Speaker 1: with some sentiment in the fourth quota, but going forward,
Speaker 1: we need to really see what happens with the economy
Speaker 1: in mainland China, as that's going to drive flows into
Speaker 1: the region.
Speaker 3: Carlos, thank you for joining us in studio in Hong Kong.
Speaker 3: Carlos Casanova, Senior Asia Economists at UVP. Joining us now
Speaker 3: is Shena Sissel, CEO of Bandary and Capital Management, Shana.
Speaker 3: When I look at my big board here in markets,
Speaker 3: I see obviously a lot of green on the screens,
Speaker 3: and you've got the vics up over twenty. So it
Speaker 3: is safe to say that most investors arelong but hedged.
Speaker 9: Yeah, I guess it's pretty safe to say that it
Speaker 9: hasn't been advantageous to not belong, So I think people
Speaker 9: have kind of come to that conclusion over the last
Speaker 9: few months and more money has flown into equity markets.
Speaker 2: So when we look at the inflation story, I think
Speaker 2: we can agree that things are a lot less severe
Speaker 2: than they were even twelve months ago. We had a
Speaker 2: flat reading on producer prices. Last month's reading on consumer
Speaker 2: level inflation was a little hotter than the market had
Speaker 2: been prepared for. Do you think this is going to
Speaker 2: change the Fed's view on how to manage monetary policy
Speaker 2: in the short term.
Speaker 9: I don't know, honestly. I think the job report here
Speaker 9: in the US, the most recent one, was surprisingly good
Speaker 9: and even better than anybody expected, which I think the
Speaker 9: FED is paying attention to those numbers. Inflation appears to
Speaker 9: be under control, but it's still not at the Fed's target.
Speaker 9: So I think any kind of economic upside, especially as
Speaker 9: it relates to the job market, or even you know,
Speaker 9: an inflation reading that seems tame on the surface but
Speaker 9: that underneath has some pockets that are a little hot,
Speaker 9: will make the FED, you know, consider their policy decisions,
Speaker 9: potentially make it so that they are going to be
Speaker 9: cutting at a slower rate than I think the market
Speaker 9: has been anticipating.
Speaker 3: So we always ask our guests about targets in this
Speaker 3: environment here where you've got US equity valuations pretty high.
Speaker 3: It's been another great year, given that central banks are
Speaker 3: cutting and that at least growth in the United States
Speaker 3: is looking pretty solid. Would it paid to go outside
Speaker 3: the US for equity markets like maybe some of the
Speaker 3: less attended to develop markets and even emerging markets.
Speaker 9: I think the economic condition especially in Europe in particular,
Speaker 9: aren't quite as strong as here in the US, and
Speaker 9: that is potentially an opportunity. But it's not someplace that
Speaker 9: I would run into completely open arms. I would be selective,
Speaker 9: but there's certainly potential for opportunities to start to think
Speaker 9: about way in which you can look at your portfolio
Speaker 9: and kind of diversify some of the risks. The US
Speaker 9: can't lead forever. The problem is it's really hard to
Speaker 9: figure out the timing of these things, and I don't
Speaker 9: see any indications, particularly in Europe, that would suggest me
Speaker 9: that now is the time to jump in. But it's
Speaker 9: certainly something that I would keep an eye on as
Speaker 9: you think about how they're a European monetary policy, UK
Speaker 9: monetary policy and things of that nature start to reflect
Speaker 9: in the economic conditions in those those countries.
Speaker 2: I appreciate you sharing your thoughts in advance. The notes
Speaker 2: that you provided indicate that you're a little defensive here
Speaker 2: in some of your positioning. To what extent is that
Speaker 2: tied to the impending election.
Speaker 9: It's not necessarily tied to the pending election. It's more
Speaker 9: tied to the fact that I think it's really hard
Speaker 9: to have a perfect soft landing. I think it's really
Speaker 9: hard for the FED to be right and to not
Speaker 9: have unintended consequences of their policy. More importantly, I think
Speaker 9: that the FED potentially cutting too quickly is a negative.
Speaker 9: I think the economy is doing just fine in the
Speaker 9: GDP numbers keep being revised upward, so I am a
Speaker 9: little concerned that they will loosen too quickly and that
Speaker 9: has unintended consequences. That's why I'm defensive. But I'm also
Speaker 9: concerned of how the fixed income markets are kind of positioned,
Speaker 9: so I have alt exposure instead of bond exposure kind
Speaker 9: of as a reflection of that.
Speaker 3: So if we see China kick in because of the stimulus,
Speaker 3: and it's true, it's a little disappointing over the weekend,
Speaker 3: but not really that disappointing.
Speaker 6: It just means the numbers are coming a little bit later.
Speaker 3: But anyway, if China does well, X number of companies
Speaker 3: in Asia will do well, maybe not all the equity
Speaker 3: benchmarks because some money may get sucked into China, but
Speaker 3: companies that are leveraged to China should do well. Are
Speaker 3: you looking at that? Do you have any any gems
Speaker 3: you can share with us?
Speaker 9: Absolutely definitely looking at that. Do I have any gems?
Speaker 9: I can't say that I do a lot of investing
Speaker 9: outside of the US, so I can't say that I've
Speaker 9: paid particular attention to anything specifically, but I can't say
Speaker 9: broadly speaking, you know a lot of Chinese companies, particularly
Speaker 9: tech companies and things of that nature, really beaten up
Speaker 9: at interesting valuations. Some of the secondary, second derivative kind
Speaker 9: of opportunities, especially in energy and things of that nature,
Speaker 9: I think are interesting outside of the US. And any
Speaker 9: sort of multinational, multi international companies that have a lot
Speaker 9: of potential opportunity to increase growth and exposure in China
Speaker 9: is a good thing. China not done well recently, so
Speaker 9: having that expressure has been a negative. But if you
Speaker 9: look at anybody who might be leveraged to the Chinese market,
Speaker 9: even in the multinationals here in the US, that that
Speaker 9: could be a positive.
Speaker 2: So I'm curious in the US equity space, is there
Speaker 2: a theme or a few themes that you like right
Speaker 2: now that you think will deliver in the next six
Speaker 2: to nine months.
Speaker 9: I think that if you go down cap that there's
Speaker 9: some opportunities. I'm not necessarily saying small caps per se,
Speaker 9: but if you think about kind of a FED loosening
Speaker 9: and cutting of rates, that tends to be better down cap.
Speaker 9: So looking at mid caps and small caps I think
Speaker 9: are interesting here. I also think moving outside of the
Speaker 9: mag seven and looking at I think industrials are really interesting,
Speaker 9: and healthcare is really interesting to me. Those are areas
Speaker 9: that I would be paying attention to as we have
Speaker 9: greater breath in the market.
Speaker 3: I hear from policy are from commentators that small caps
Speaker 3: as a group are not very good, so you have
Speaker 3: to be a good stock picker. But then you would
Speaker 3: think that the best companies in there, if if they
Speaker 3: did well, that perhaps they'd have the same sort of
Speaker 3: impact that the best companies the S and P five
Speaker 3: hundred dominate and lift the whole the whole complex. How
Speaker 3: do you actually approach looking for mid caps and small caps?
Speaker 9: Well, that's actually the problem. Companies that do well in
Speaker 9: the lower cap indices graduate leave, they leave. Super micro
Speaker 9: Computer is a perfect example of that it was one
Speaker 9: stock that drove a lot of their turns in the
Speaker 9: Russell two thousand for a long time, and then it
Speaker 9: graduated and it didn't matter anymore. So, uh, that's why
Speaker 9: you have to be very particular and you really have
Speaker 9: to be a stock picker when you look at these
Speaker 9: industries because there's you know, rising stars and falling angels, right,
Speaker 9: you got to you gotta know which is which, right,
Speaker 9: because things fall.
Speaker 6: That's why we have you rise.
Speaker 9: Into out of it. So yeah, you just really have
Speaker 9: to look at the momentum, some of the earnings and
Speaker 9: the businesses there and figure out what really are That's
Speaker 9: why small cap active managers have traditionally been able to
Speaker 9: outperform in a way that is not seen in the
Speaker 9: mega and large cap names.
Speaker 3: Well, I guess that's it for today. Unfortunately out of time.
Speaker 3: It's always fun to talk with you, and I know
Speaker 3: you always come on on a Sunday, which is very
Speaker 3: kind of you. SHANEA thank you for joining us. Shane Sissel, there,
Speaker 3: CEO of Boundery and Capital Management.
Speaker 2: This has been the Bloomberg Daybreak Asia podcast, bringing you
Speaker 2: the stories making news and moving markets in the Asia Pacific.
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Speaker 6: Hey