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Speaker 1: Live at about fifteen minutes in San Francisco. I'm at Baxter.

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Speaker 1: This is Bloomberg. Alright, alright, we're going to Kuala Lumpur

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Speaker 1: next where Silas Jaw is based. He is the chief

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Speaker 1: economist also the head of market research at r HB

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Speaker 1: Banking Group. Silas. Always a pleasure to have the chance

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Speaker 1: to chat with you, particularly when it comes to your

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Speaker 1: neck of the woods, your expertise the Asia Pacific. Talk

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Speaker 1: to me about what you expect the growth story to

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Speaker 1: be in China now that we're seeing our huge relaxation

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Speaker 1: of these COVID restrictions. Well, um, so this is the

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Speaker 1: recent change in policy, and how we would characterize the

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Speaker 1: forward looking view is this is an on again, off

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Speaker 1: again policy. We just don't know, you know, how long

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Speaker 1: this change in policy will will can continue and the

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Speaker 1: depth of it and what looked a variety of measures

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Speaker 1: to relax OVID nineteen zero policy going going forward highly unpredictable.

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Speaker 1: So for us, the song remains the same as lights up.

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Speaker 1: One would say, Um, you know, next year we're at

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Speaker 1: four percent GDP growth, this year at three percent. You know,

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Speaker 1: the official GDP numbers overstate the two reality of what's

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Speaker 1: going on in the economy. Um, you know, we have

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Speaker 1: a number that it's one and a half percent. Is

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Speaker 1: the two number in terms of one a half percent

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Speaker 1: below the official numbers that wrote ultimately materialized. Bottom line

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Speaker 1: is that without getting a joining of the technicalities, things

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Speaker 1: are looking bad in China. I don't we don't see

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Speaker 1: any signs of a real recovery in two thousand three.

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Speaker 1: And we had also mentioned that with this type of

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Speaker 1: growth this year around one and a half percent the

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Speaker 1: truth grade grade of growth and next year around two

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Speaker 1: percent or so means that, uh, you know, the social

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Speaker 1: unrest will pick up, social instability risks pick up. And

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Speaker 1: that's exactly we've written about this like a month two

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Speaker 1: months ago, and that's exactly what's what's happening. So not

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Speaker 1: looking good. Yeah, just stick with the leads apple and theme.

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Speaker 1: They're not exactly a stairway to heaven, more of a

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Speaker 1: rocky path us. The other words, what's the steep drop

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Speaker 1: offs roles in the road, What what sort of support

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Speaker 1: do you anticipate coming down the road from policy makers

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Speaker 1: in China? I think it. What will continue is continuing

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Speaker 1: loosening of monetary policy and the idea that they clearly

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Speaker 1: need to depreciate their currency against the dollar. That's kind

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Speaker 1: of what they have left in their tool kit and

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Speaker 1: what that means is in the medium term, our our

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Speaker 1: thought processes, and of course the timing is always certain

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Speaker 1: uncertain when it comes to currencies. Is that you know,

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Speaker 1: dollars China dollarsy in age is added to seven point

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Speaker 1: five to eight. You know this recent drop a though

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Speaker 1: seven has been a phenomenal job, if I may right,

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Speaker 1: And this is purely due to market you know, sentiment turning,

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Speaker 1: nothing fundamental about it. And when I see moves like

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Speaker 1: this in the currency, it's like, you don't know a

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Speaker 1: lot it's gonna last. But focus on what the end

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Speaker 1: game is. And the end game is this currency is

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Speaker 1: going to appreciate fast to some point to eight. They

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Speaker 1: don't have much room left on the fiscal front. They

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Speaker 1: have a variety of get issues. I think we've talked

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Speaker 1: about it for years. They starting, you know, the try

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Speaker 1: gets a handle on that, but the death problem is

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Speaker 1: going to continue. Property sector is gonna languish. Um an

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Speaker 1: industrial sector is just becoming a less less competitive. Yeah,

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Speaker 1: we've been asking whether or not a lot of the

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Speaker 1: move that we have seen in risk assets as it

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Speaker 1: relates to China has really been nothing more than short

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Speaker 1: covering because you know, so many people have been so

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Speaker 1: negative given the COVID situation. An immediate reversal creates kind

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Speaker 1: of a short squeeze, so you can see a stronger

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Speaker 1: currency and a recovery and in some equities. But when

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Speaker 1: I listen to you kind of lay out your thesis here,

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Speaker 1: I'm wondering whether or not we are inherently going to

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Speaker 1: see greater risk begin to develop within the internal structure

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Speaker 1: of the banking system, the lending system within China. Is

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Speaker 1: that a distinct possibility Those risk are early there because

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Speaker 1: what's going on is that the the repo market UH

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Speaker 1: is the primary funder or channel mechanism to injecting liquidly

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Speaker 1: to a variety of sectors, whether it's two between banks

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Speaker 1: and corporates, whether it's through banks and the financial markets,

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Speaker 1: and that risk has been on for several years now

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Speaker 1: and it is gonna it is gonna continue. That's one

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Speaker 1: of the things is that the plumbing, but the plumbing

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Speaker 1: is all jammed with all these issues related to debt,

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Speaker 1: whether it's debt in the private sector or the public sector,

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Speaker 1: or related to those, uh, you know, very esoteric wealth

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Speaker 1: management products. Now, will the bank's collapse probably is not.

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Speaker 1: You know, I think that's a very low problem event.

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Speaker 1: Will there be a hard landing, probably not. But it

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Speaker 1: just means that this is a country that, in terms

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Speaker 1: of the risk reward, is a place where you really

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Speaker 1: don't want to invest for the next several years. I

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Speaker 1: get the sense you're you're flipping the narrative on its hid.

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Speaker 1: In terms of some of the conversations we've been having

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Speaker 1: on the show, a lot of people are sort of

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Speaker 1: optimistic about the China reopening and concerned about the risk

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Speaker 1: of a recission in the US. But you feel the

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Speaker 1: US can avoid recission. The pismism maybe been a bit overdone.

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Speaker 1: Why is that right? So here's the China narrative. It's

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Speaker 1: because this is on a tactical basis. I mean, I

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Speaker 1: don't see any anyone out there thinking about medium to

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Speaker 1: long term. So, you know, any market can go up

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Speaker 1: and down on a tactical basis. And it's simply because

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Speaker 1: the by side, large asset managers and the banks have

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Speaker 1: been so heavily invested in China, and it means that

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Speaker 1: they're basically talking their book. So obviously, you know, they

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Speaker 1: want the market to go up and hopefully take some

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Speaker 1: profit and cover some of their losses that they've already

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Speaker 1: incurred in the last couple of years. On the U

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Speaker 1: S side, Um, you know, look this, the characterization of

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Speaker 1: the U S is basically a recession that has never come.

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Speaker 1: You know, the market basically was calling many cell side

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Speaker 1: analysts were calling for a recession this year than happened.

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Speaker 1: I was pushed to two thousand twenty three. Part of

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Speaker 1: the market thinking coming two thousand twenty four for us,

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Speaker 1: it's not gonna come. We just don't think that, you know.

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Speaker 1: So for first of all, let me lay out our

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Speaker 1: forecasts in conclusion, our forecast for two thousand twenty three,

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Speaker 1: which is more important, is two this year, we have

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Speaker 1: a forecast at two point The Bloomberg consensus estimate for

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Speaker 1: this year has been revised up to one point eight

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Speaker 1: percent from one point five percent. Uh, you know, over

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Speaker 1: the last couple of months, and for next year at

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Speaker 1: zero point four percent. How do you get to that

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Speaker 1: zero point four percent? Is beyond my comprehension From an

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Speaker 1: analytical perspective. We've done a lot of work on the

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Speaker 1: US economy because obviously it affects us over here in Asia.

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Speaker 1: There's just no evidence that you can point to, you know,

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Speaker 1: the the compelling the evidence is the following. All right,

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Speaker 1: what we're seeing and from a bottoms up perspective from

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Speaker 1: our proprietary indicators, as U economic actively actually accelerated in

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Speaker 1: the well, that's going to keep the FED even more engaged.

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Speaker 1: And and maybe we're looking at a terminal rate well

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Speaker 1: above five. I want to give you about sixty seconds.

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Speaker 1: You know, we use the term black swan a lot,

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Speaker 1: and I think let's agree that it is an event

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Speaker 1: where right now the market is assigning extremely low probability,

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Speaker 1: something infinitesimal. And I'm wondering if you're gonna can go

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Speaker 1: out on a limb and give to me what you

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Speaker 1: see as a potential black swan in I think, look,

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Speaker 1: there are three three unknowns out there of what you know,

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Speaker 1: in terms of driving it bought a black swan event.

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Speaker 1: They're always unanticipated. Obviously, One I think is really the

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Speaker 1: China risk. How bad it really gets out there in China.

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Speaker 1: That's point number one. Two is that all of a

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Speaker 1: sudden the Ukraine Russia conflict just explodes and all the

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Speaker 1: stuff that the Russians have been able to ship to

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Speaker 1: a variety of means in terms of commodities. If that

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Speaker 1: just this stops happening, commodity prices go up significantly, much

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Speaker 1: more than where we are. We get that place number

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Speaker 1: three quickly. Number three quickly is that the FED go

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Speaker 1: to that's clearly not in the price right. That's a

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Speaker 1: that's a black swan. Right forecast is five to. We're

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Speaker 1: out of time. Sorry. Silas, chief economist and hit of

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Speaker 1: market Research at RhB Banking Group