WEBVTT - US Stocks Are Expensive. You Should Still Buy Them 0:00:02.720 --> 0:00:11.280 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:17.920 --> 0:00:19.239 Welcome to Merrin Talks Money. 0:00:19.280 --> 0:00:21.640 The podcast so much people who know the markets explain 0:00:21.720 --> 0:00:22.239 the markets. 0:00:22.280 --> 0:00:23.360 I'm Merrin Sum's that web. 0:00:23.480 --> 0:00:26.800 This week, I'm joined by Natalia Lippikina, ahead of EMEA's 0:00:26.840 --> 0:00:30.640 equity strategy and an executive director at JP Morgan Private Bank. 0:00:30.760 --> 0:00:32.640 We're going to talk about her current outlook on the 0:00:32.680 --> 0:00:35.080 equity markets as a whole, her take on the Great 0:00:35.159 --> 0:00:37.479 rotation to the extent there is one, and what she 0:00:37.479 --> 0:00:40.760 see is happening to the dollar over the next few months, 0:00:40.760 --> 0:00:42.040 plus of course a little more. 0:00:42.200 --> 0:00:44.000 Natalie, Welcome to Merrin Talks Money. 0:00:44.200 --> 0:00:45.320 Thank you so much for having me. 0:00:46.000 --> 0:00:47.520 Good of you to join us today. 0:00:47.520 --> 0:00:48.920 Now, I think if we're going to talk about equity 0:00:48.920 --> 0:00:51.080 markets at all, we've got to start on the US, 0:00:51.120 --> 0:00:53.080 the biggest and the boldest of all of them. 0:00:53.120 --> 0:00:54.760 What is your outlook there? 0:00:54.800 --> 0:00:58.120 And we keep talking on this podcast about the great 0:00:58.200 --> 0:01:02.040 rotation and about how money is just definitely going to 0:01:02.040 --> 0:01:04.760 move out of America into other markets. Valuations in the 0:01:04.840 --> 0:01:07.959 US will come down, valuations elsewhere will go up, but 0:01:08.080 --> 0:01:11.320 it never seems to quite happen in the volume that 0:01:11.480 --> 0:01:12.200 we expect. 0:01:12.959 --> 0:01:16.800 We are actually quite still constructive on the US market. 0:01:17.480 --> 0:01:20.480 We like other markets like Europe, but we don't want 0:01:20.480 --> 0:01:23.360 to abandon the United States of America. And I think 0:01:23.400 --> 0:01:27.000 it's fascinating to see how quick the recovery has actually 0:01:27.080 --> 0:01:30.720 been since April lows. ASMP was down close to twenty 0:01:30.760 --> 0:01:34.080 percent at some point this year, and we're now making 0:01:34.120 --> 0:01:37.080 all time highs again. And I think the reason is 0:01:37.120 --> 0:01:42.919 because the markets and participants got more comfortable with AI story. Again. 0:01:43.680 --> 0:01:45.520 At the beginning of the year, there were loads of 0:01:45.600 --> 0:01:49.720 questions around AI, the deep seek and you know, all 0:01:49.760 --> 0:01:52.440 the money that has been invested into AI if that 0:01:52.560 --> 0:01:56.560 leads to any side of returns. Now, when you look 0:01:56.560 --> 0:01:59.960 into the earning season that just happened in the first quarter, 0:02:00.240 --> 0:02:03.720 we actually got the confirmation that AI trade is still ongoing. 0:02:04.360 --> 0:02:08.960 Companies continue to spend money despite the tariff uncertainty. And 0:02:09.240 --> 0:02:13.240 we're just one or two weeks before the earning season again, 0:02:13.639 --> 0:02:16.840 and we just think that the tech companies NAI companies 0:02:16.840 --> 0:02:19.880 will continue to do well. And remember US market is 0:02:19.919 --> 0:02:23.560 predominantly tach driven, so the outlook on tech is very important. 0:02:24.280 --> 0:02:28.560 Okay, so when you look at valuations, maybe I'm too 0:02:29.040 --> 0:02:32.160 valuation orientated, but When I look at the US, for example, 0:02:32.200 --> 0:02:36.120 we still have pretty much the most expensive valuations ever 0:02:36.240 --> 0:02:40.799 seen apart from two thousand, etc. And you look at 0:02:40.840 --> 0:02:44.080 any valuation method, doesn't matter what you look at, it's 0:02:44.160 --> 0:02:47.519 still close to historic highs. And every time you see 0:02:47.639 --> 0:02:51.480 valuations at this kind of level, you see returns in 0:02:51.600 --> 0:02:55.680 the following decade pretty week. So if that doesn't happen 0:02:55.680 --> 0:02:57.959 this time, it will be a bit of a historical anomaly. 0:02:58.080 --> 0:03:01.640 Right, I would say that we are quite comfortable with 0:03:01.720 --> 0:03:04.200 where the valuation can actually stay. Where in the camp 0:03:04.200 --> 0:03:07.840 that valiation can be between twenty twenty one times next 0:03:07.880 --> 0:03:10.960 twelve months price to earnings. And the reason for that 0:03:11.240 --> 0:03:13.840 is when you look into where tech is right now 0:03:14.080 --> 0:03:17.760 in terms of the waiting, in terms of the net income, 0:03:18.120 --> 0:03:20.560 it's so much better and so much more important that 0:03:20.639 --> 0:03:23.240 it has been in the last ten to fifteen years. 0:03:23.800 --> 0:03:26.720 The S and P market is predominantly driven by tech, 0:03:27.200 --> 0:03:30.359 and if you look underneath the sector, you basically have 0:03:30.480 --> 0:03:34.520 margins that are improving and you have the AI story. Now, 0:03:34.560 --> 0:03:38.240 I want to emphasize on AI story, because AI doesn't 0:03:38.280 --> 0:03:43.000 just equal tech. The penetration of AI doubled over the 0:03:43.080 --> 0:03:47.840 last year or so and what AI actually is. It 0:03:47.880 --> 0:03:51.320 means that some companies can become more efficient by efficient, 0:03:51.400 --> 0:03:55.120 meaning that their margin can actually be higher longer term, 0:03:55.520 --> 0:03:59.400 that all of that actually deserves a higher valuation. So 0:03:59.720 --> 0:04:02.960 if you look into the kapex intensity, those tech businesses 0:04:03.000 --> 0:04:06.600 are just less capex intense, their margins continue to grow, 0:04:06.680 --> 0:04:08.960 they continue to invest into AI. And this is the 0:04:09.000 --> 0:04:11.840 reason why. Which is comfortable with the multiple? Or where 0:04:11.920 --> 0:04:15.280 is this right now? Again fascinating to see valuation is 0:04:15.320 --> 0:04:18.160 back to twenty two times as we speak, despite the 0:04:18.200 --> 0:04:21.400 warriors around tariffs, despite the war, is about where earnings 0:04:21.440 --> 0:04:24.119 will be this year, and I think the fundamental reason 0:04:24.160 --> 0:04:25.320 for that is tech. 0:04:26.120 --> 0:04:28.200 Another one of the conversations that we have over and 0:04:28.240 --> 0:04:31.159 over and over is at what point do profit margins 0:04:31.400 --> 0:04:33.880 in the US revert to some kind of mean, because again, 0:04:33.920 --> 0:04:37.440 you have historically high profit margins and you might say, well, 0:04:37.560 --> 0:04:41.800 because of AI, because of that, but nonetheless, historically these 0:04:41.839 --> 0:04:44.200 things do tend to revert to a bit of a mean. 0:04:44.240 --> 0:04:47.280 And when you see things at this level, what happens 0:04:47.360 --> 0:04:50.080 is maybe there's a different type of competitional maybe there's 0:04:50.120 --> 0:04:53.280 a new series of regulations, et cetera, et cetera, something 0:04:53.440 --> 0:04:57.000 usually comes in to reduce margins when they hit this 0:04:57.080 --> 0:04:58.440 kind of big But you don't think that's going to 0:04:58.440 --> 0:04:59.000 happen this time. 0:04:59.000 --> 0:04:59.919 You see them continueing to. 0:05:00.680 --> 0:05:04.159 Well, I think it depends how quickly businesses adopt AI. 0:05:04.440 --> 0:05:07.520 Right now, you have less than ten percent of companies 0:05:07.520 --> 0:05:11.040 adopting AI. I think it's quite a low number compared 0:05:11.080 --> 0:05:13.600 to what benefits AI can actually bring to the business. 0:05:13.800 --> 0:05:14.000 Yeah. 0:05:14.760 --> 0:05:18.839 Now, if companies do embrace the AI adoption, that should 0:05:18.920 --> 0:05:22.599 lead to better margins overall. Now, if you're talking about 0:05:22.680 --> 0:05:26.359 more cyclical downturn, of course it can happen. Cyclical downturn 0:05:26.440 --> 0:05:28.760 can happen at any point in time, right, it may 0:05:28.760 --> 0:05:31.359 happen with terriffs. For example, we still don't know what 0:05:31.600 --> 0:05:34.479 teriffs will bring this year. Right, we're still in the 0:05:34.520 --> 0:05:36.839 way to see mode. For example, for this year, we 0:05:37.000 --> 0:05:40.120 are in the wider they expected range. We think that 0:05:40.440 --> 0:05:42.800 s and peak earnings can be between plus two to 0:05:42.839 --> 0:05:46.840 plus nine because tariff uncertainty is still here. But if 0:05:46.880 --> 0:05:49.840 we're talking about like structurally, we think that AI just 0:05:50.000 --> 0:05:52.719 can bring more efficiencies out of the companies. 0:05:53.600 --> 0:05:56.800 Okay, that's companies across the board. The AI companies themselves 0:05:56.960 --> 0:05:59.760 e actually the producers. We had someone on the other 0:05:59.800 --> 0:06:03.599 day who is just discussing AI models and saying, you know, basically, 0:06:03.680 --> 0:06:06.040 they're kind of all the same, and in the end, 0:06:06.160 --> 0:06:09.040 these companies are going to be the AI is going 0:06:09.080 --> 0:06:12.080 to be effectively like airlines. Lots of lots of companies 0:06:12.160 --> 0:06:14.960 bringing powers of capacs in and producing rather similar products 0:06:14.960 --> 0:06:17.440 and seeing their margins. You know, never never quite get 0:06:17.440 --> 0:06:18.479 where you think they're going to be. 0:06:19.040 --> 0:06:21.960 But also remember it's also the companies that adopt AI. 0:06:22.160 --> 0:06:25.040 I think, of course, the discussion is much much broader 0:06:25.080 --> 0:06:28.680 than just technology companies. Technology companies are just enablers of that, 0:06:29.080 --> 0:06:32.560 but I think the adoption will be actually across different sectors. 0:06:32.920 --> 0:06:35.839 So when we finally get the great productivity revolution we've 0:06:35.839 --> 0:06:42.159 been waiting for for decades, potentially yes, okay, not potentially yes, 0:06:42.360 --> 0:06:43.240 just yes, right. 0:06:44.160 --> 0:06:46.760 We'll see as we go, depending on how companies are 0:06:46.760 --> 0:06:47.479 adopting AI. 0:06:48.200 --> 0:06:52.920 Okay, So do you still think that in an ordinary 0:06:52.960 --> 0:06:57.520 person's portfolio, the US should be the kind of waiting 0:06:57.600 --> 0:06:59.880 that it has been for the last few years. So 0:07:00.080 --> 0:07:02.680 a lot of portfolios ordinary people are held with wealth 0:07:02.720 --> 0:07:05.640 managers in the UK or elsewhere, etc. Will have maybe 0:07:05.800 --> 0:07:10.480 fifty sixty close to seventy percent of their equity allocation 0:07:11.000 --> 0:07:11.720 in the US. 0:07:11.840 --> 0:07:13.080 Is that still appropriate? 0:07:13.160 --> 0:07:16.240 Do you think it's still appropriate to have a very 0:07:16.280 --> 0:07:19.480 high wasting to a S and P. But people should 0:07:19.520 --> 0:07:23.120 think about how much dollars they actually want to have 0:07:23.200 --> 0:07:28.520 in their portfolio because we're clearly seeing the move over 0:07:28.560 --> 0:07:32.320 the last decade or so, a lot of investors built 0:07:32.880 --> 0:07:36.400 very big overweights to the US market and the US dollar. 0:07:37.080 --> 0:07:40.360 Now we're in the camp that we think that dollar 0:07:40.400 --> 0:07:43.440 will continue to depreciate. For example, we have a target 0:07:43.440 --> 0:07:46.520 of one twenty by mid twenty twenty six on euro dollar. 0:07:47.040 --> 0:07:50.200 So that means that people start needs to start thinking, Okay, 0:07:50.200 --> 0:07:54.360 how do I actually diversify my US dollar portfolio? Now, 0:07:54.360 --> 0:07:56.840 it doesn't mean that you abandon the US. It just 0:07:56.840 --> 0:08:01.320 means that marginally you just start looking into our their geographies, 0:08:01.440 --> 0:08:05.120 for example Europe. And when you look into Europe, I think. 0:08:05.200 --> 0:08:07.800 So, can I interrupt you just sorry briefly that when 0:08:07.840 --> 0:08:11.040 you say marginally, what do you mean? Do you mean 0:08:11.040 --> 0:08:13.000 that you should take your waiting in the US down 0:08:13.080 --> 0:08:15.920 to forty percent? And how big a shift are we 0:08:16.000 --> 0:08:16.640 talking about? 0:08:16.880 --> 0:08:19.320 No, I think the shift to forty percent is quite 0:08:19.360 --> 0:08:23.440 substantial I'm talking about if you know investors have ninety 0:08:23.480 --> 0:08:26.520 percent exposure to the US, that is pretty substantial. Right 0:08:26.800 --> 0:08:30.040 If you look into MSCI World, somewhere between sixty to 0:08:30.160 --> 0:08:31.560 seventy percent makes sense to. 0:08:31.520 --> 0:08:34.400 US, okay, So just the what's what's in the index? 0:08:34.800 --> 0:08:35.199 Correct? 0:08:35.559 --> 0:08:40.520 So anyway, anyone who holds a global ETF is already 0:08:40.520 --> 0:08:41.800 where you would think they should. 0:08:41.559 --> 0:08:44.640 Be exactly because there are there are people out there 0:08:44.640 --> 0:08:47.640 who have very big exposures to two dollars and to 0:08:49.160 --> 0:08:52.439 US markets, and they should start rethinking how much they 0:08:52.440 --> 0:08:55.480 want to have. Sixty seventy percent looks good to. 0:08:55.440 --> 0:08:56.480 US, okay. 0:08:56.480 --> 0:08:58.160 And one of the one of the numbers that I 0:08:58.240 --> 0:09:01.920 keep watching is the number of the percentage of corporate 0:09:01.920 --> 0:09:04.240 equities in the US that are held by foreign investors. 0:09:04.240 --> 0:09:06.480 And it keeps creeping up and up and up and 0:09:06.559 --> 0:09:08.880 up and up. And it's now seventeen and a half, 0:09:08.920 --> 0:09:12.240 nearly eighteen percent. And that's up from more like sort 0:09:12.240 --> 0:09:16.480 of five six percent towards the end of the nineteen nineties. 0:09:16.880 --> 0:09:19.960 So you know, there's been a massive shift by non 0:09:20.120 --> 0:09:23.880 US investors into the US. But you are feel that 0:09:23.880 --> 0:09:24.880 people should be happy with. 0:09:24.840 --> 0:09:26.960 That, well, I think and This is what I mean 0:09:27.000 --> 0:09:29.839 by marginally reducing the exposures, because if you think about 0:09:29.920 --> 0:09:33.199 what was the reason for that, it's first of all, 0:09:33.240 --> 0:09:36.480 a very strong performance of the US equity market, but 0:09:36.640 --> 0:09:42.320 also very strong dollar. And when you know, US market 0:09:42.360 --> 0:09:45.080 continues to perform really well, but there are question marks 0:09:45.120 --> 0:09:49.600 around FX, and when other markets are also performing well. 0:09:49.640 --> 0:09:53.280 Back to European domestics story that is happening right now, 0:09:53.360 --> 0:09:55.760 which wasn't the case, you know, even five years ago. 0:09:56.120 --> 0:10:00.480 When there is an interesting story here in Europe, you know, 0:10:00.559 --> 0:10:04.240 investors just start thinking about how much they actually want 0:10:04.280 --> 0:10:06.960 to have in the US if there are alternative markets 0:10:07.000 --> 0:10:09.560 to that. This is one of the reasons. The second 0:10:09.600 --> 0:10:12.520 one is talking you know, in our outlook, one of 0:10:12.559 --> 0:10:17.439 the big themes was actually portfolio resilience. So traditionally people 0:10:17.480 --> 0:10:22.079 have sixty to forty in their portfolio. Maybe adding different 0:10:22.160 --> 0:10:26.080 asset classes, different sources of risk and return to your 0:10:26.120 --> 0:10:32.000 portfolio makes sense. Infrastructure, gold, hedge funds, So there is 0:10:32.080 --> 0:10:35.000 a lot to talk about that rather than just having 0:10:35.000 --> 0:10:37.600 you know, all exposure in the US equity market. 0:10:38.040 --> 0:10:39.800 Okay, well, let's go back to when I interrupted you 0:10:39.840 --> 0:10:42.080 five minutes ago, for which I apologize you were just 0:10:42.120 --> 0:10:44.800 starting to talk about European markets and saying that if 0:10:44.800 --> 0:10:47.760 you're moving a little out of the US, Europe would 0:10:47.760 --> 0:10:49.520 be one of the top places you would think would 0:10:49.520 --> 0:10:50.200 be reagionable to go. 0:10:50.280 --> 0:10:50.760 Is that right? 0:10:51.120 --> 0:10:53.440 That's correct, And it's interesting what is happening in Europe 0:10:53.520 --> 0:10:59.360 because historically, and would mean five ten years, the way 0:10:59.520 --> 0:11:03.079 everyone into Europe was around, well, there is a very 0:11:03.080 --> 0:11:06.520 good stimulus and strong stimulus in China, less by European 0:11:06.559 --> 0:11:09.800 equities because they're exposed to that market, or the US 0:11:09.880 --> 0:11:14.240 economy is growing and very strong. Europe has exposure to 0:11:14.240 --> 0:11:17.720 that market. That is changing. What is happening in Europe 0:11:17.760 --> 0:11:21.480 right now is you're basically seeing a very strong fiscal 0:11:21.520 --> 0:11:24.280 stimulus coming from the German market. And just to put 0:11:24.360 --> 0:11:27.440 some numbers into that, five hundred billion over the next 0:11:27.480 --> 0:11:31.000 twelve years, that is pretty substantial on the economy. That 0:11:31.080 --> 0:11:34.880 is roughly four trillion. You compare that to the COVID 0:11:35.400 --> 0:11:38.960 package back in the US in twenty twenty one, similar size, 0:11:39.120 --> 0:11:42.480 but in a much larger economy, so the impact was 0:11:42.520 --> 0:11:45.400 smaller and it was quite unprecedented. Not a lot of 0:11:45.440 --> 0:11:48.240 people were expecting, you know, something from the German economy, 0:11:48.440 --> 0:11:52.880 who is in general quite fiscally constrained, so that was 0:11:52.880 --> 0:11:57.560 surprise number one. And secondly, obviously the security spending that 0:11:57.640 --> 0:12:01.360 is coming out of European countries that is also quite unprecedented. 0:12:01.559 --> 0:12:04.200 So when you put two things together, you're seeing the 0:12:04.280 --> 0:12:08.520 growth in the European market that can potentially slightly narrow 0:12:08.520 --> 0:12:11.840 the gap with the US earnings growth. Now we don't 0:12:11.880 --> 0:12:15.959 think it's completely closest. We just think that the gap. 0:12:15.760 --> 0:12:19.920 Narrows, okay, And that means that it still makes sense 0:12:19.960 --> 0:12:24.120 for European markets have lower valuations overall than US markets 0:12:24.160 --> 0:12:26.360 because that growth differential remains. 0:12:26.600 --> 0:12:30.199 And it's not just growth differentiate, it's also the sector composition. 0:12:30.400 --> 0:12:33.839 When you look into the discounts, Europe in general traits 0:12:33.880 --> 0:12:37.320 at around twenty to thirty percent discounts to the US. 0:12:38.000 --> 0:12:41.280 Right now we're thirty percent. And the reason is because 0:12:41.360 --> 0:12:43.640 one of the reasons is because we just don't simply 0:12:43.679 --> 0:12:46.720 have enough tech. We have a lot of financials, we 0:12:46.800 --> 0:12:49.600 have a lot of industrials, whereas US market is all 0:12:49.600 --> 0:12:55.160 about tech. So naturally your sector composition is quite different, 0:12:55.280 --> 0:12:58.640 meaning that the evaluation is different as well. Now in 0:12:58.720 --> 0:13:00.960 terms of the growth, the growth is also quite different. 0:13:01.160 --> 0:13:04.360 But the growth is just the matter of the sector 0:13:04.360 --> 0:13:07.440 composition that you have. Our tech sector is much smaller 0:13:07.440 --> 0:13:10.280 than in the US, and therefore our growth is smaller 0:13:10.280 --> 0:13:12.600 as well. But when we look into twenty twenty six 0:13:12.679 --> 0:13:15.880 and twenty twenty seven, so the next two years, we 0:13:15.960 --> 0:13:18.560 actually think that the growth can be between mid to 0:13:18.600 --> 0:13:21.000 high single digit. Now this year is a bit more 0:13:21.080 --> 0:13:24.560 uncertain because of the tariffs, but next year, combination of 0:13:24.880 --> 0:13:29.000 German fiscal stimulus security spending in Europe can actually lead 0:13:29.080 --> 0:13:32.800 to a bit better than average growth in Europe. 0:13:33.200 --> 0:13:33.520 Okay. 0:13:33.559 --> 0:13:36.120 And when you look at Europe, which sectors are interesting 0:13:36.160 --> 0:13:38.640 and obviously there's a huge amount of money is going 0:13:38.679 --> 0:13:41.200 to be going into defense. And one of the things 0:13:41.240 --> 0:13:44.200 that we've talked about again quite a lot here, both 0:13:44.240 --> 0:13:47.720 in the US and across Europe, is this changing nature 0:13:47.760 --> 0:13:50.120 of what defense means. And we know when we talk 0:13:50.160 --> 0:13:53.080 in the UK about spending five percent of our GDP 0:13:53.240 --> 0:13:54.600 on defense, and no one knows where that money is 0:13:54.600 --> 0:13:57.319 going to come from, obviously, but let's say we somehow 0:13:57.320 --> 0:13:59.680 find that money. We know it's not actually going to 0:13:59.720 --> 0:14:02.240 go in to you know, tanks and guns. A lot 0:14:02.240 --> 0:14:07.600 of it is going to go into energy, security and infrastructure, etc. 0:14:08.000 --> 0:14:11.720 So that's that's that's a changing dynamic. Is that a 0:14:11.760 --> 0:14:14.319 sector that you find interesting in Europe? 0:14:14.840 --> 0:14:19.200 Well, like industrial sector, So industrial sector is exposed to 0:14:19.360 --> 0:14:23.680 a lot of different themes and structurally it is interesting. 0:14:24.000 --> 0:14:27.360 One of the big themes that industrials is actually exposed 0:14:27.400 --> 0:14:31.480 to is AI. So AI is a big topic. And 0:14:31.680 --> 0:14:34.120 it's not just tech companies that expose to do I, 0:14:34.520 --> 0:14:38.000 it's also the industrial companies. The second thing is you 0:14:38.120 --> 0:14:42.640 have the fiscal spending in Germany, so naturally the companies 0:14:42.680 --> 0:14:46.360 that are the most exposed to that will actually be industrials. 0:14:46.560 --> 0:14:49.400 And we think that the impact is likely to come 0:14:49.960 --> 0:14:52.720 I would say from next year rather than this year. Again, 0:14:52.760 --> 0:14:57.480 this year is more teriff specific, and then yes, defense 0:14:57.520 --> 0:15:03.080 spending is also increase in Europe. But overall, I would 0:15:03.080 --> 0:15:07.160 say when you look into the European story, the most 0:15:07.160 --> 0:15:10.640 interesting angle is actually the domestic companies because in the 0:15:10.720 --> 0:15:14.760 last decades or so, I would say, the focus has 0:15:14.840 --> 0:15:18.280 been on the multinational companies that have exposure to the US, 0:15:18.320 --> 0:15:22.080 have exposure to Asia, but less exposure to Europe. And 0:15:22.120 --> 0:15:25.760 now it's changing. People want to have domestically oriented companies 0:15:25.960 --> 0:15:30.720 are the industrial sector, financial sector, construction utilities, because again 0:15:31.040 --> 0:15:34.280 the story is evolved here in the region rather than 0:15:34.320 --> 0:15:36.880 everyone else. And on top of that, you basically have 0:15:37.760 --> 0:15:40.640 if you're looking into the domestic oriented companies, you have 0:15:40.800 --> 0:15:45.360 more exposure domestically, but also less effects risk, which is 0:15:45.400 --> 0:15:49.200 quite important because you know, when euro dollar continues to rise, 0:15:49.480 --> 0:15:52.360 that is not great for some of the exporters. And secondly, 0:15:52.360 --> 0:15:53.400 you have less terrif risk. 0:15:54.440 --> 0:15:57.560 What about the consumer orientated companies or even the luxury 0:15:57.600 --> 0:15:58.760 good companies. 0:15:59.720 --> 0:16:02.600 I think I think the expectations for those companies are quite 0:16:02.800 --> 0:16:08.520 weak as we speak. I think they need to deliver 0:16:09.320 --> 0:16:14.280 better than expected results in the coming couple of quarters 0:16:14.680 --> 0:16:19.440 and especially show that the US market continues to be strong. 0:16:20.120 --> 0:16:23.440 And then there is a bit of a relief in 0:16:23.480 --> 0:16:25.880 the Chinese market, which hasn't been the case for the 0:16:25.960 --> 0:16:29.520 last couple of years. I think the valuation is attractive 0:16:29.560 --> 0:16:32.160 for those markets, but there is a very kind of 0:16:32.200 --> 0:16:36.000 a big divergence between the losers and the winners in 0:16:36.080 --> 0:16:40.000 the space. But overall, right now, the market has a 0:16:40.000 --> 0:16:44.160 bit of a downturn and needs better growth to kind 0:16:44.200 --> 0:16:46.480 of to show investors that this sector remains to be 0:16:46.520 --> 0:16:47.760 interesting long term. 0:16:47.920 --> 0:16:49.960 Do you look at the UK at full Natalie, are 0:16:50.000 --> 0:16:51.160 you very focused on Europe? 0:16:51.440 --> 0:16:54.960 I do. It's a cheap market, but it has been 0:16:55.040 --> 0:16:58.480 cheaped for a very long time. The challenge with the 0:16:58.560 --> 0:17:03.040 UK is it just doesn't have the same fiscal stimulus 0:17:03.080 --> 0:17:06.440 as German economy, for example, has and as a result, 0:17:06.640 --> 0:17:11.160 you just don't have the same earnings growth as the 0:17:11.200 --> 0:17:17.359 European markets currently is experiencing. So there are interesting pockets 0:17:17.400 --> 0:17:22.000 in the markets in different sectors, like real estates, some 0:17:22.200 --> 0:17:26.639 in oil and gas sector, but overall we just can't 0:17:26.680 --> 0:17:30.800 find the driver for the UK markets to rerate. 0:17:31.880 --> 0:17:34.359 Talked about physical stimulus quite a lot, and obviously the 0:17:34.400 --> 0:17:37.080 main reason that UK can't have fysical stimulusms because it's 0:17:37.160 --> 0:17:40.600 horrific levels of debt and deficit, so you know, we're 0:17:40.640 --> 0:17:43.239 not really in a position to spend, and the UK 0:17:43.400 --> 0:17:46.560 has is particularly bad, but across Europe there's still an 0:17:46.600 --> 0:17:51.520 ongoing debt problem. There any any markets that concern you particularly. 0:17:51.800 --> 0:17:53.879 Not really, I would say this is just in general 0:17:53.960 --> 0:17:56.400 the theme as you highlighted the theme going into this year, 0:17:56.440 --> 0:18:02.520 were highlighted this particular each you to investors and look, 0:18:02.560 --> 0:18:04.960 I think the reason why for example, Germany was able 0:18:05.000 --> 0:18:07.480 to do the fiscal stimulus was because they were very 0:18:07.480 --> 0:18:10.720 prudent for the last you know, decades or so when 0:18:10.760 --> 0:18:13.960 we look into the other countries, is just much much 0:18:14.000 --> 0:18:19.440 more difficult to have a very similar fiscal spending. And frankly, 0:18:19.480 --> 0:18:21.800 this is one of the reasons why when we talk 0:18:21.920 --> 0:18:27.640 to investors we highlight the power of you know, diversifying 0:18:27.680 --> 0:18:32.480 beyond your sixty to forty portfolio, adding other asset classes 0:18:32.520 --> 0:18:35.600 that can do well if inflation picks up, for example, 0:18:35.840 --> 0:18:41.200 alternatives for example, infrastructure, hatch funds, gold, so really diversifying 0:18:41.280 --> 0:18:44.920 given the potential different scenarios that can unfold. 0:18:45.600 --> 0:18:47.880 So when you say infrastructure, what do you mean From 0:18:47.920 --> 0:18:49.960 a retail ordinary investors point of view? 0:18:50.760 --> 0:18:55.440 It can be just as boring infrastructure as airports and roads, 0:18:55.560 --> 0:18:59.040 or it can be digital infrastructure that is growing much faster, 0:18:59.160 --> 0:19:02.040 for example data centers. But I would say this is 0:19:02.080 --> 0:19:05.000 probably more a theme in the private markets rather than 0:19:05.000 --> 0:19:06.160 public markets. 0:19:06.800 --> 0:19:11.600 Okay, and gold in back at the late seventies early eighties, 0:19:11.600 --> 0:19:15.040 it was considered perfectly normal, in fact even compulsory to 0:19:15.119 --> 0:19:18.399 have at least five, six, seven, eight, nine, ten percent 0:19:18.440 --> 0:19:22.040 of your portfolio in gold, and then suddenly over the 0:19:22.080 --> 0:19:25.000 eighties nineties, as inflation disappeared as a risk, so did 0:19:25.000 --> 0:19:27.560 the gold allocation. And now we're at a point where 0:19:28.200 --> 0:19:32.560 almost no ordinary investors hold any gold at all. And 0:19:32.680 --> 0:19:34.440 you what would you say, What would you say to them? 0:19:34.440 --> 0:19:34.879 And why? 0:19:35.680 --> 0:19:39.200 I would say that investors should definitely have exposure to gold. 0:19:39.960 --> 0:19:43.360 Gold continues to be one of our highest conviction despite 0:19:43.440 --> 0:19:47.480 the big rally. It's a different asset class. It provides 0:19:47.560 --> 0:19:51.760 you with the diversification benefits, and it's also one of 0:19:51.800 --> 0:19:55.639 the asset classes to look giving the dollar weakness. So 0:19:55.800 --> 0:19:59.959 absolutely investors should look into dollar and investor. 0:20:00.920 --> 0:20:03.920 And it's also I mean, it's your insurance against geopolitics, 0:20:03.960 --> 0:20:05.000 isn't it correct? 0:20:05.040 --> 0:20:09.520 I would say in general the geopolitics for US, geopolitics 0:20:09.520 --> 0:20:12.760 tend to have a very short lived impact on market. 0:20:14.160 --> 0:20:17.840 What matters to us usually is earnings. Earnings is the 0:20:18.040 --> 0:20:22.960 most important factor when investing into markets, and as I 0:20:23.000 --> 0:20:26.480 mentioned before this year, we may have a bit of 0:20:26.560 --> 0:20:30.600 uncertainty given the tariff risk, but overall we're seeing a 0:20:30.720 --> 0:20:34.040 very strong corporate backdrop at this point. 0:20:34.560 --> 0:20:37.199 Okay, so you are only interested in geopolitics to the 0:20:37.320 --> 0:20:40.000 extent that you can see exactly how it is that 0:20:40.040 --> 0:20:42.600 they will affect earnings. It's not so much a sentiment thing. 0:20:42.720 --> 0:20:46.359 View correct sentiment can be actually a short lift. It 0:20:46.800 --> 0:20:50.160 was interesting to see the oil price move a couple 0:20:50.240 --> 0:20:53.399 of weeks ago when oil was trading above eighty, but 0:20:53.520 --> 0:20:56.720 now it's going back to sub seventy and it just 0:20:56.760 --> 0:21:00.399 shows you that even though the sentiment was rising, but 0:21:00.600 --> 0:21:04.000 overall we're not seeing a very big impact on geopolitics 0:21:04.440 --> 0:21:04.920 right now. 0:21:05.320 --> 0:21:07.240 But it's still from what you said earlier about the 0:21:07.320 --> 0:21:10.200 UK market, I picked up that you feel people should 0:21:10.200 --> 0:21:12.440 maybe still have some allocation to oil and gas. 0:21:12.960 --> 0:21:15.600 It depends when you look into the equity markets. And 0:21:15.680 --> 0:21:17.960 if you're buying the broader exposure, you will have the 0:21:18.000 --> 0:21:20.199 exposure to oil and gas because it's part of the 0:21:20.200 --> 0:21:23.159 intex it's just your exposure will be much smaller than 0:21:23.280 --> 0:21:26.600 the rest of the sectors. Overall, this is not the 0:21:26.720 --> 0:21:28.240 sector that we currently recommend. 0:21:28.800 --> 0:21:33.720 Okay, and outside Europe and the US, any markets that 0:21:33.760 --> 0:21:36.120 you look at that you find interesting, we. 0:21:36.119 --> 0:21:39.080 Think that in emergent markets, India looks quite interesting. 0:21:40.320 --> 0:21:43.000 In expensive, though expensive. 0:21:42.920 --> 0:21:46.359 Expensive but justified when you look into the valuation. It 0:21:46.440 --> 0:21:51.000 trades above its five year average on the PE multiple, 0:21:51.600 --> 0:21:54.040 but we think it's justified because you have the economy 0:21:54.080 --> 0:21:58.040 that is growing mid to high single digit. That translates 0:21:58.080 --> 0:22:02.359 actually into the earnings. Earnings are growing nicely double digit. 0:22:02.840 --> 0:22:06.439 Now it's very hard to find the economies and the 0:22:06.560 --> 0:22:09.359 markets that are growing so much. And then you also 0:22:09.400 --> 0:22:12.480 have a very interesting angle in my view, that is 0:22:12.640 --> 0:22:17.399