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Speaker 1: Let's get to our guest, Martin Hennecke, Asia Investment Director St.

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Speaker 1: James's Place Wealth Management. Mr Hennecky, it's nice to have

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Speaker 1: you in our studios. It's been a while. Um. Listen

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Speaker 1: to this line. Good drivers don't increase their speed as

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Speaker 1: they get closer to their destination. So that's a comment

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Speaker 1: from Mike Farrowley at JP Morgan on the FED and inflation.

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Speaker 1: It seems to suggest we're getting there, don't get reckless.

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Speaker 1: Does that work for you? I'm betting that doesn't work

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Speaker 1: for you. Well you you you started off by saying

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Speaker 1: I might have some spice in you, so don't try

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Speaker 1: try my best. But firstly, just to answer this particular question,

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Speaker 1: I would agree that most likely we're going to see

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Speaker 1: the point seven five percent increase. When you look at

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Speaker 1: the options markets, this probability is so that's not exactly

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Speaker 1: a very revolutionary prediction, I would say. But I think, um,

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Speaker 1: you know, firstly, the vents that we saw Tuesday should

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Speaker 1: be a good reminder just for investors to be cautious generally.

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Speaker 1: You know, Brian, I've talked about, you know, the risk

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Speaker 1: of not using too much leverage for a long time.

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Speaker 1: You know, they're very well and you can sort of see,

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Speaker 1: you know, the reasons for that, particularly in the last

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Speaker 1: few months, why they can be quite risky on both ends.

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Speaker 1: The non predictability of markets, particularly short term and enter

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Speaker 1: rising funding cost. Of course, if you do leverage the

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Speaker 1: other things, not your volatility TOL runs on speculized short

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Speaker 1: term diversify etcetera, etcetera, etcetera. But then I, you know,

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Speaker 1: do I really think the FAT hike very far from here?

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Speaker 1: You know, when you look at that term the fat

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Speaker 1: terminal funds right which is the market prediction right now

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Speaker 1: of where the hike to the topics four points three

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Speaker 1: seven seven, and they actually doubt that they can go

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Speaker 1: much further than that, at least not for any prolonged

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Speaker 1: period of time. And the reason for that is not

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Speaker 1: even necessarily the economy or potential recession risk, but the

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Speaker 1: high dead levels. And again it's something and we have

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Speaker 1: talked a lot about two. But actually, Brian, for the

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Speaker 1: first time I've seen it being set by the Federal

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Speaker 1: Reserve last months there was a report out but the

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Speaker 1: Federal Reserve of the Federal Reserve Bank of Chicago August nineteens,

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Speaker 1: they're actually basically saying in that report that the feed

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Speaker 1: a loan can stop inflation. Again, give you a quote here,

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Speaker 1: trend inflation is fully controlled by monetary authority, Only in

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Speaker 1: public debt can be successfully stabilized, etcetera, etcetera. If you

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Speaker 1: read this through the Okay, okay, hold on to that comment.

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Speaker 1: Juliet's got a question for it. Yeah, Marda and I

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Speaker 1: just wanted to get more of a broad question. I

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Speaker 1: know you said diversify, but but where we actually see

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Speaker 1: equities move when you've got their forecast coming through from

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Speaker 1: the feed of these potentially more aggressive hikes. Do you believe,

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Speaker 1: like Carlisle Group does, that it's a good time to

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Speaker 1: jump back in. Yes, that's, you know, the multimillion dollar question.

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Speaker 1: I believe what you over oversees when there's a strong

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Speaker 1: inflation number, the need drug reaction of the market. There's

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Speaker 1: always been a sell of any risk assets, and many

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Speaker 1: of those assets are actually the same that our medium

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Speaker 1: to long term inflation proof assets as well. I think

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Speaker 1: what's not really priced in this that the fat might

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Speaker 1: eventually lose this inflation fight, that we might not not

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Speaker 1: have seen the end of it. Because high deficits are

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Speaker 1: also an inflation driver, and it's been something that's building

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Speaker 1: even long before COVID and equities generally speaking, I mean

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Speaker 1: there's differences in different sectors short term, long term, but

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Speaker 1: generally speaking, equities is one asset that tends to be

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Speaker 1: more inflation proof than say cash, and contest is property

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Speaker 1: and commodity sets that you like to get in the

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Speaker 1: weeds on us. But I think one counter argument is

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Speaker 1: the Fed will not lose this battle. It can't lose

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Speaker 1: the battle. It will raise interest rates until it shuts

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Speaker 1: down inflation and they can't print money. So Doug, they're

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Speaker 1: talking about the weekend potentially inflating those Japanese imports. What's

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Speaker 1: your view on the potential intervention we could see given

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Speaker 1: that precursor yesterday with the rate check that indicate was reporting,

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Speaker 1: given this very very weak and that we're seeing, well,

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Speaker 1: that's a good question. I would just say against something

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Speaker 1: quite interesting out of the box here if I may,

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Speaker 1: which is said for investors, it may not actually matter

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Speaker 1: that much. And here's why. I mean, Firstly, when in

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Speaker 1: look at Japanese equity valuations within Japan via via very

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Speaker 1: very low, and then as an international investor you would

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Speaker 1: get the yen discount. Now, if there's an intervention and

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Speaker 1: there's again rebound, one might capture some of that gain

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Speaker 1: in this way. But if not, I see ultimately UM

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Speaker 1: the low yen resulting in corporates in Japan having higher profits,

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Speaker 1: particularly where there's any export exposure. And as I mentioned earlier,

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Speaker 1: sort of as an sset class equities generally, UM is

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Speaker 1: an S class that can float on inflation better relative

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Speaker 1: to to others. So I think actually Japanese equities are

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Speaker 1: quite an interesting area to look at it. If one

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Speaker 1: can stomach a degree of volatility, I would actually look

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Speaker 1: at having some exposure one more functor in Japanese. Still,

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Speaker 1: at this moment, there's not that great a fear of inflation.

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Speaker 1: It's just when you's slowly starting and seeing the PPI

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Speaker 1: is nine percent, it's it's going to feed its way through.

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Speaker 1: It's not as strong as in the US and Europe.

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Speaker 1: Eventually it's going to come though. The strong input numbers

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Speaker 1: that you've seen an indication. But so far most of

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Speaker 1: the Japanese household assets all in cash or very very

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Speaker 1: cautious products, and I think as they get more inflation conscious,

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Speaker 1: some of that is going to move back to property

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Speaker 1: and or equity. Ah, that could be good. That's an

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Speaker 1: interesting angle. I know you've been pretty positive on China

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Speaker 1: as well. UM valuations for Hong Kong and Chinese equities

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Speaker 1: are quite low. There is the policy risk. But then

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Speaker 1: with valuations this slow, are you getting paid to take

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Speaker 1: that risk? Um? In a nutshell, I would suggest so,

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Speaker 1: certainly with someone with exposure, Uh that one has got already.

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Speaker 1: I don't think now giving in now, giving up now

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Speaker 1: is is a particularly good timing. And as part of

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Speaker 1: a diversified portfolio, I think, yeah, there are really really

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Speaker 1: great opportunities. Policy risk. I don't see it so much

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Speaker 1: in terms of the regulatory side anymore. In fact, we

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Speaker 1: have seen approve. It's just very recently of new games,

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Speaker 1: but ten Cent and net Ease, which might indicate the

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Speaker 1: long awaited regulatory easing finally really might not Chinese pass

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Speaker 1: You might be US passy. Look what happened with biotech

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Speaker 1: the other day. Oh yes, absolutely, Global geopolitical risk, global

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Speaker 1: geopolitical trade is a massive risk. Diversifications of as one

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Speaker 1: of the keys you know for investing, if if only

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Speaker 1: for the reason but regionally you actually and this has

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Speaker 1: been you know, not talked about much anymore. Recently, the

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Speaker 1: r CP trade deal is just only getting under way

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Speaker 1: this year. Only earlier this week, Indonesia actually ratified finally

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Speaker 1: the r CP deal. And while you know, we made

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Speaker 1: see anti globalization sort of between East and West, within

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Speaker 1: the Asian Block, there might actually be more trade happening.

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Speaker 1: So they are both resilent opportunities. But overall, I think, yes,

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Speaker 1: there are definitely good opportunities there. You mentioned Indonesia, there

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Speaker 1: is is that an attractive play is as seeing an

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Speaker 1: attractive play, well, I wouldn't necessarily want to pinpoint too

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Speaker 1: much individual economies countries. Often it depends really on where

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Speaker 1: you find good businesses, and that might we might really

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Speaker 1: be into regional as well. No would necessarily say one

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Speaker 1: particular sector is better than another. Um. You know, sometimes

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Speaker 1: whenever there's a very popular story out there, whether that's

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Speaker 1: biotech or technology. Over the last few years, you see

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Speaker 1: also risks might be particularly high, so we really look

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Speaker 1: at it more from a bottom up perspective company rather

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Speaker 1: than making a microeconomic play in individual countries. So does

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Speaker 1: that also make it hard to recommend a sector or

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Speaker 1: some sort of industry. Yes, absolutely, I mean in my

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Speaker 1: twenty years experience. Generally speaking, whenever we see high demand

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Speaker 1: for any particular sector or or country, very very often,

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Speaker 1: not necessarily always, so you can't counter rely on it

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Speaker 1: hundred percent either. But you know, for example, I mentioned

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Speaker 1: China technology, then you see many other areas. Whenever there's

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Speaker 1: the highest demand, usually you see a very sharp drop afterwards.

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Speaker 1: So I would just say one should be balanced in

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Speaker 1: terms of style. It's very important, you know, not neglecting

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Speaker 1: styles that might have underperformed. For Vibe, we have seen

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Speaker 1: up with value this year, but now also growsers getting

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Speaker 1: more attractive generally, Martin, thank you for coming into our

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Speaker 1: Hong Kong studio. Martin Hanneke Asia Investment Directors in James's

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Speaker 1: Place Wealth Management with us in Hong Kong here on

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Speaker 1: Bloomberg Daybreak Asia