WEBVTT - George Boubouras on the Markets (Audio)

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<v Speaker 1>Let's get to George bob Boras, executive director and head

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<v Speaker 1>of Research at K two Asset Management in our Singapore studio. George,

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<v Speaker 1>great to have you with us. Um. So we've been

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<v Speaker 1>posing on the Market's live blog. You know if there

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<v Speaker 1>are any alternatives to the dollar, well, this morning there

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<v Speaker 1>appeared to be and it it brings us to the

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<v Speaker 1>story of the advanced by the Ukraine military. You can't

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<v Speaker 1>read too much into it, but my gosh, if this

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<v Speaker 1>led to some sort of settlement talks between Russia and Ukraine,

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<v Speaker 1>that could bode well for the future. I'm getting excited

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<v Speaker 1>at the thought your thoughts. Yes, Um, I'm looking at

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<v Speaker 1>the same headlines as you, as you sort of highlighted,

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<v Speaker 1>and that is a left field Jai political to win

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<v Speaker 1>without a doubt, um, But but front and center the

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<v Speaker 1>US dollar strength is I think even those paper that

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<v Speaker 1>didn't believe it last year, I can say it notwithstanding

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<v Speaker 1>what you've just said on the Jai political that it's

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<v Speaker 1>got so much certainty and predictability related to other regents

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<v Speaker 1>the world right across the capital structure. When you're investing

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<v Speaker 1>that while the strength won't continue at this rate, you'd

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<v Speaker 1>suspect it to stay to these levels for a little

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<v Speaker 1>bit longer. But notwithstanding again what you've just said that

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<v Speaker 1>that would be very big positive ta win for Europe.

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<v Speaker 1>That's in the world of pain so strong a dollar.

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<v Speaker 1>What about in terms of what other kind of moves

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<v Speaker 1>we're going to see in risk oursets this week as

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<v Speaker 1>we await the key inflation print. Yeah, so you know,

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<v Speaker 1>like most people will put my head up, Juliete and say,

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<v Speaker 1>it would be a reasonable statement to say that we

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<v Speaker 1>are peak inflation in the US, and that's tug and cheek.

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<v Speaker 1>Of course we are, but it's about the way the

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<v Speaker 1>unit costs feed into the core inflation measures. Can't see

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<v Speaker 1>it getting down to that two or three band anytime

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<v Speaker 1>soon unfortunately. Um, But it will be positive news. And

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<v Speaker 1>the headline sentiment is waning, particularly on the retail investor side,

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<v Speaker 1>sentiment on the institutional side, it's a bit more proactive. Um,

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<v Speaker 1>But it would be a positive news event this week.

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<v Speaker 1>Notwithstanding again, I'm using that word a lot. Seventy five

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<v Speaker 1>basis point is a lot for this month, and those

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<v Speaker 1>people that are trying to create a narrative that that's

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<v Speaker 1>not going to happen, I don't think that's quite right.

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<v Speaker 1>They've got plenty of opportunity just to deliver the seventy

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<v Speaker 1>five and do a fifty and then twenty five going

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<v Speaker 1>to that order, and I think that that that's available

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<v Speaker 1>and they should go down that pathway, and that gets

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<v Speaker 1>you right up to four percent on the Fed funds rate.

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<v Speaker 1>And we don't have to see inflation at two to

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<v Speaker 1>three percent from markets to to really stand up and

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<v Speaker 1>pay attention, right, George, I mean, if you start to

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<v Speaker 1>see inflation coming down and investors sense that, you know this,

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<v Speaker 1>this will take some time, but it's happening at a

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<v Speaker 1>time when the Fed is probably maxed out up around

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<v Speaker 1>four percenters, so markets might rally spot on, and that's

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<v Speaker 1>it rallying and restrictive, knowing that it's increasing at a

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<v Speaker 1>decreasing rate. Again back to basics. Next rate move, we're

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<v Speaker 1>going to official type monetary restrictive levels, and then a

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<v Speaker 1>couple more moved to get to that four four handle.

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<v Speaker 1>And in that narrative that you said, you know, with

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<v Speaker 1>minimal rate rises in twenty three, just holding that's a

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<v Speaker 1>good rally. Multiples are reasonable, they're not cheap, they're not expensive,

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<v Speaker 1>they're reasonable. High yield is in higher demand in the

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<v Speaker 1>short duration. But those two asset class are just naming

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<v Speaker 1>two of many would would rarely quite strongly on that narrative.

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<v Speaker 1>What's your outlook for Asia when we're starting to see

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<v Speaker 1>the latter part of the year coming in. And of

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<v Speaker 1>course that dollar strength also complicates things here too. Yeah, BlimE,

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<v Speaker 1>it does complicate things, and it's complicated things again, we

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<v Speaker 1>don't tend to use March twenty one has been so

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<v Speaker 1>difficult because what's going on in China and it's just

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<v Speaker 1>continues to have more pain delivered to itself. And so

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<v Speaker 1>therefore we just look at the other side of the

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<v Speaker 1>Congress and we believe bitter clarity. For five years they've

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<v Speaker 1>been much more coordinated, innovative fiscal stimulus that can actually

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<v Speaker 1>work with the p BOC, but not good news coming

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<v Speaker 1>out of their Hence, evaluations are very very cheap. Nevertheless,

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<v Speaker 1>we still underweight that area where we traditionally would be overweight.

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<v Speaker 1>But you know, Alie Barb and JD are just too

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<v Speaker 1>that we would have picked up in that late June

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<v Speaker 1>quarter sell off. But a world of pain still to

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<v Speaker 1>be delivered. Let's just get the other side of this

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<v Speaker 1>party Congress and try and get some certainty and to

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<v Speaker 1>see what they're what they're going to do for the

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<v Speaker 1>years ahead to deal with this economic destruction of that

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<v Speaker 1>that's been delivered through that economy. Let's pick up on

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<v Speaker 1>what you were talking about with the China COVID zero

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<v Speaker 1>policy or dynamic zero. We're looking ahead at the Party

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<v Speaker 1>Congress to see whether or not that is dropped or not.

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<v Speaker 1>If it is, do things change materially from there? And

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<v Speaker 1>I guess what our sets would you be looking in

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<v Speaker 1>China that are potentially undervalued at the moment. Yeah, a

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<v Speaker 1>million dollar question, Juliet, but quite clearly post the Congress,

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<v Speaker 1>expectation for more certainty from a low base, that's pretty

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<v Speaker 1>reasonable statement. And then basically cross across the board and

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<v Speaker 1>everything is discounted in China again because of Beijing's policy

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<v Speaker 1>pivot in March twenty one. That's really confused the West

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<v Speaker 1>in trying to acquire and buy future earnings. So there's

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<v Speaker 1>so many, so many opportunities in mainland China, but obviously

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<v Speaker 1>the domestic demand that they're more consumption expectation for the

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<v Speaker 1>decade ahead, there's just so much upside. But right across

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<v Speaker 1>the board earlier there's just discounts for what's been going

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<v Speaker 1>on and the disappointment. So obviously, you know the five

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<v Speaker 1>and a half were never going to happen from a

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<v Speaker 1>year ago, but obviously now we're getting that three and

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<v Speaker 1>a half possibly a two handle. So they're really got

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<v Speaker 1>to turn it around for this calendar year and get

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<v Speaker 1>those upgrades for twenty three and then twenty four and beyond.

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<v Speaker 1>But again, the certainty from Party Congress creates opportunity. The

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<v Speaker 1>more opportunity and certainty they can create for investors, they

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<v Speaker 1>need capital, it is finite. Still, there's there's opportunities right

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<v Speaker 1>across the bord to mainland China staying away from property

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<v Speaker 1>still as they did as that destruction. It's working through

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<v Speaker 1>the system to the p BOC come up with some

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<v Speaker 1>top of broad based solution. But a bad bank perhaps

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<v Speaker 1>can be part of that narrative. But but yeah, it's

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<v Speaker 1>discounted through out for many many reasons. You can you

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<v Speaker 1>can flip a switch on on dynamic zero, but you

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<v Speaker 1>can't flip a switch on the on the Chinese property crisis.

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<v Speaker 1>Is that something that they are going to be suffering

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<v Speaker 1>the consequences from that for years to come. Spot on

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<v Speaker 1>and really looking for a new quote Mario drag Pboc

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<v Speaker 1>Beijing narrative, like something big has to happen to solve

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<v Speaker 1>what is significant. This is the biggest property impairment the

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<v Speaker 1>world's ever seen, and it has to be addressed some way.

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<v Speaker 1>But having said all of that, the again, it's all

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<v Speaker 1>about that certain team policy. They need to start from

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<v Speaker 1>a low base and create that. And then with the

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<v Speaker 1>opening up of mainland China, let's look at the template

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<v Speaker 1>coming out of Japan. Much smaller, completely different economy for

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<v Speaker 1>obvious reasons. But the opening up of Japan is a

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<v Speaker 1>is a smaller template of what will be happening in

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<v Speaker 1>mainland China when they do decide to really open up

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<v Speaker 1>sometime next year. How attractive is Japan. I've also got

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<v Speaker 1>that incredibly weakend. Yeah, it's it's it's always attractive. It's

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<v Speaker 1>just it's generally a safe haven to not go to underweight, Julian,

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<v Speaker 1>let it go to overweight. But nevertheless, Japan is attractive

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<v Speaker 1>in the reopening narrative that particularly from October November this year,

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<v Speaker 1>it is an attractive place to be and a lot

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<v Speaker 1>of a lot of funds that have been investing in

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<v Speaker 1>Asia I've been using more and more Japan and at

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<v Speaker 1>the bottom end Australian New Zealand for the dividend to

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<v Speaker 1>compensate for what's been going on in China and those

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<v Speaker 1>linked to China earnings. I take it you raised some

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<v Speaker 1>cash over the past a couple of months looking for

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<v Speaker 1>the right opportunity where where will you deploy them with

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<v Speaker 1>the most feverish aggression. Yes, so the cash was quite

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<v Speaker 1>high in this in the in the June quarter and

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<v Speaker 1>about ten. It has been deployed in July and August

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<v Speaker 1>and so far so far in September, but that's been

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<v Speaker 1>deployed coming out of that sell off into energy. So

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<v Speaker 1>even at global portfolio, so woodside because of the Woodside

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<v Speaker 1>global portfolio as few depresent l n G. So we're

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<v Speaker 1>looking maintaining that overweight. Looking at global financial with US

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<v Speaker 1>dollar base, so you get JP Morgan's in there. We

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<v Speaker 1>put mcquarie Bank in that bucket for what it's worth

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<v Speaker 1>because of the diversification of earnings were across their business units,

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<v Speaker 1>and the and the compelling valuations across some of Corey

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<v Speaker 1>business units UH and then UM and anything. Looking for

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<v Speaker 1>m and an opportunity with the big cash flow, so

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<v Speaker 1>that that puts b hp rio into that into that

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<v Speaker 1>basket an opportunity there. But but but basically that l

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<v Speaker 1>m G play has been a bigger contributor at some

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<v Speaker 1>diverse five financials U S dollar base. There's still like

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<v Speaker 1>the U S dollar narrative and for the two cents

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<v Speaker 1>worth for those out there. We look at the SMP

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<v Speaker 1>five hundred ranges for the year ahead as a forty

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<v Speaker 1>four hundred thirty nine hundred, so we're towards that bottom

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<v Speaker 1>end of that range. Again, there's some head winds there,

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<v Speaker 1>but they're more predictability for those earnings in the year ahead,

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<v Speaker 1>not despote some risks. We think it's on balanced, quite reasonable. George,

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<v Speaker 1>thank you and enjoy Singapore. George bboris executive director, head

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<v Speaker 1>of Research a care to Asset Management with us in

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<v Speaker 1>our Singapore studio