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Speaker 1: So let's get to our guest, Jim McCafferty, Joint head

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Speaker 1: of a pack equity research at Nomura, and Jim, thanks

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Speaker 1: very much for joining us. We just saw from Morgan

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Speaker 1: Stanley a few moments ago economists raising their GDP forecast

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Speaker 1: for China next year to five point four percent from

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Speaker 1: five percent, and they're citing he's faster than expected COVID

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Speaker 1: reopening measures. I'm curious about Nomura and I want to

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Speaker 1: ask you whether or not this translates then necessarily to

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Speaker 1: equity price gains and also as a sort of sidebar

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Speaker 1: to it, does it worse in the inflation problem? Uh

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Speaker 1: that the globe is facing. Wow, that's a lot of questions,

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Speaker 1: but I think I've got it. You know, it's just

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Speaker 1: too Actually one is is it good for equities? And

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Speaker 1: secondly does it lead to inflation globally? Well, that'swer is

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Speaker 1: yes and yes. Firstly on the equity mark is more importantly,

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Speaker 1: what's happening in the US is actually quite pivotal to

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Speaker 1: what happens in Asia, um partly because explorers are very

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Speaker 1: much driving stock markets around the region. But in the

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Speaker 1: case of China specifically, it's stock market is more insulated

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Speaker 1: from the rest of the world and many Asian markets,

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Speaker 1: and the fact that China is loosening its approach to

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Speaker 1: CORVID will cause an increase in domestic economic activity, as

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Speaker 1: has been identified by one of our competitors. We feel

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Speaker 1: the same way and NOMA, and we are optimistic on

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Speaker 1: stock market conditions for next year. One of the things

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Speaker 1: we think will drive equity prices in three is very

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Speaker 1: well investor positionings right now foreign investors unless the tempercent

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Speaker 1: of China. China is sixtent of the world economy, so

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Speaker 1: it's a bit of a disconnect between investor positionings and

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Speaker 1: the size and the scale of China relative to the

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Speaker 1: corporal economy. We've just had a story on the Bloomberg

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Speaker 1: in the past twenty four hours about the amount of

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Speaker 1: absenteeism that's now being experienced in China. So if they

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Speaker 1: exports are driving equity prices and a lot of part

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Speaker 1: work and start going off sick, what's that going to mean? Okay,

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Speaker 1: So for China, be mindful that it's the economy now

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Speaker 1: has got more of a domestic angle than it has

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Speaker 1: done historically. I think if you go back to the

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Speaker 1: two thousand to two thousand and ten periods, then exports

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Speaker 1: as percentage of GDP was really driving the growth at

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Speaker 1: that point in time. Now, however, domestic consumption is more

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Speaker 1: of the economic story, and things like property prices are

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Speaker 1: going to be quite pivotal. So while you've got tightening

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Speaker 1: to certain extent in the US and the Western world,

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Speaker 1: you've got a more liberal attitude towards montre policy in China,

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Speaker 1: which will actually help asset prices. So on the basis

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Speaker 1: that you've got relatively cheap money, despite the fact that

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Speaker 1: you've got these let's see imbalances in the economy relating

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Speaker 1: to port workers, etcetera, we do think that with valuations

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Speaker 1: at single digit p s in many cases, then there's

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Speaker 1: going to be support for the equity market. Jim, I apologize,

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Speaker 1: you are absolutely right. I did ask a third question

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Speaker 1: that was Nomura's response to to China's I apologize for that.

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Speaker 1: You handle that quite definitely. I'm curious if you think

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Speaker 1: that the change in policy on COVID also feeds through

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Speaker 1: to a change in policy on tech and maybe a

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Speaker 1: little bit of a change in policy on the property crisis.

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Speaker 1: You know, I really think it does, And for policy

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Speaker 1: watchers on China people like me, people like commentators and

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Speaker 1: similar positions. It's like reading the tea leaves. How do

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Speaker 1: we interpret these signals. One thing that we've been considering

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Speaker 1: is that in the course of the last few years,

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Speaker 1: China has been talking about this content called common prosperity.

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Speaker 1: That's not not out of sync with other big democracies

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Speaker 1: for for example, like the US, like Japan, which wants

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Speaker 1: to see a more even distribution of wealth. But one

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Speaker 1: thing investments were very concerned about was that that common

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Speaker 1: prosperity could actually be negative for the private sector. But

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Speaker 1: recently we've had the big tech in China, the big

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Speaker 1: stock market tolm Off, like ten Center and Ali Baba

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Speaker 1: started to talk about returning has to shareholders. So that

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Speaker 1: gives us some confidence. And the fact that you've got

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Speaker 1: this COVID reopening policy does show that the government is

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Speaker 1: listening to people. It knows that the world is watching,

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Speaker 1: and it knows that it could faced domestic civil disobedience

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Speaker 1: if it doesn't actually change its policy. So that in itself,

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Speaker 1: I think is going to be quite a signal for

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Speaker 1: investors that China is actually listening to its population. Yeah,

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Speaker 1: you make an interesting point, you know, COVID zero got

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Speaker 1: turned on his head so quickly after the end of

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Speaker 1: the People's Congress and she jimping God's third term. Do

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Speaker 1: you anticipate any other policy U turns coming. Not specifically.

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Speaker 1: The only thing I would say is that China has

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Speaker 1: been dumped in the basket of Russia type um asset classes.

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Speaker 1: So China, like Russia, like Korea, Taiwan, is an emerging market,

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Speaker 1: and earlier this year when we had Ukraine invasion, a

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Speaker 1: lot of asset owners required in their farm mana just

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Speaker 1: to exit from Russia. And because China is physically proximate

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Speaker 1: and ideologically proxim into Russia, China was put in the

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Speaker 1: same basket. I think the fact that you've got a

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Speaker 1: government which appears to be listening to its population might

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Speaker 1: actually scale back the level of dissatisfaction or level of

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Speaker 1: anti trust, let's say, of a lot of investors with

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Speaker 1: Chinese equities, and the fact that China is signaling it

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Speaker 1: wants to be part of the global economy more than

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Speaker 1: it did over the last couple of years could be

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Speaker 1: incrementally positive. Jim does much of Asia benefit as well,

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Speaker 1: either because of China's reopening or due to other factors

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Speaker 1: it does. So, for example, Japan, which was the second

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Speaker 1: because economy in the world, I think it's down down

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Speaker 1: at number three, but it is China. Log For Japan,

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Speaker 1: China is its biggest trading partner, so some Japanese companies

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Speaker 1: generate more revenue of profits out of China than they

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Speaker 1: do Japan. Just in terms as a population size, Japan

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Speaker 1: has a hundred twenty five million people. China has more

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Speaker 1: than more than a billion, so it's basically ten times

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Speaker 1: the size of the population. So for many Japanese companies

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Speaker 1: which are export driven, they have significant manufacturing capability in

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Speaker 1: China and rely on that as as a big end market.

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Speaker 1: So yes, it is important, and China is integralted to

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Speaker 1: the East Asian economy, especially Japan. What's your outlook for

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Speaker 1: the U s Dollar heading into three Well, number of

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Speaker 1: you is that the dollar will soften UM, and that's

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Speaker 1: really driven by the interest rates cycle being now less

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Speaker 1: aggressive than we thought it was. UM. Going back to

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Speaker 1: let's say last week when our team published its economy

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Speaker 1: that look we were looking for, you know, seventy five

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Speaker 1: basis points increment in the US rates and which would

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Speaker 1: actually see the dollar strengthen or certainly see the dollar

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Speaker 1: being more robust. I think given that the US FED

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Speaker 1: is indicating inflation is going to be more or less

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Speaker 1: more benign than previously anticipated than that would mean a

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Speaker 1: softer dollor going into do you fear an increase in

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Speaker 1: US China tentions? We actually take the view that US

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Speaker 1: China tentions have probably reached their at the peak level

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Speaker 1: going into three. We've seen signals over the course of

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Speaker 1: the last few weeks that there has been dial row

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Speaker 1: between the US and China. Specifically, if we go back

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Speaker 1: to the conference in Bali in Indonesia in the fourth

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Speaker 1: quarter where we had meetings taken place between Biden and

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Speaker 1: and the Chinese leadership um so, I think a plowing

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Speaker 1: in relations is probably more likely, and the fact that

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Speaker 1: China has indicated that it's no longer practicing the zero

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Speaker 1: COVID policy will mean a return to reopening. I returned

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Speaker 1: to the big business interacting between the two superpowers, and

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Speaker 1: that probably paid some more optimisticot for relations during three.

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Speaker 1: Just briefly, what's your number one call for next year?

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Speaker 1: Right now? We like Korea. We feel that this market

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Speaker 1: has had a battery during two. Many investors see China

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Speaker 1: has has been one of the weakest markets in Asia.

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Speaker 1: In fact, Korea has been just as bad and has

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Speaker 1: been driven by a weak domestic currency, the one also

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Speaker 1: by a stronger dollar and the fact that many of

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Speaker 1: the companies are in the tech space, which has been

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Speaker 1: suffering from UH and then to the memory cycle. So

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Speaker 1: we think again that dissipates in twenty three. Very good, Jim,

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Speaker 1: thank you very much. Jim McCafferty, joint head of a

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Speaker 1: pack equity research yet Nomura