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Speaker 1: Seven minutes past the Outlet's get to our guest, Alex Wolfe,

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Speaker 1: Managing director and head of investment Strategy at JPMorgan Private Bank,

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Speaker 1: Head of investment strategy for Asia. I just gave you

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Speaker 1: a promotion, Alex, thanks for joining us UM. So somewhere

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Speaker 1: in here we might be seeing value in the bond market.

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Speaker 1: We've got yields on the two year all the way

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Speaker 1: up at three eighty six and the tenure at three

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Speaker 1: forty four. Do you like? Do you like fixed income

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Speaker 1: for value here or would you rather look at some

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Speaker 1: stocks that have been bombed out a little bit and

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Speaker 1: longer term still look pretty good. At the moment, we

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Speaker 1: are definitely favoring fixed income, especially after the recent rise

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Speaker 1: and yields. We see it as a as an attractive

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Speaker 1: entry point we like. We like it both on the

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Speaker 1: shorter and the longer day to end as well. Shorter data,

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Speaker 1: you're you're getting attractive yields. Being able to lock in

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Speaker 1: those types of yields, especially over over a shorter time

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Speaker 1: horizon is quite attractive relative to our expectation for for

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Speaker 1: what he returns. But even on the at the longer

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Speaker 1: duration spectrum, you're getting better downside protection as well, and

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Speaker 1: particularly after the recent rise in the tenure, be able

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Speaker 1: to lock in those yields. And if we do see

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Speaker 1: an economic downturn, if we do tilt into a recession,

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Speaker 1: then you're likely to see a benefit to your portfolio

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Speaker 1: from holding holding longer data bonds and Alex, do you

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Speaker 1: think we will and if we do, how deep? How

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Speaker 1: long is a recession likely? We think that the chances

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Speaker 1: are are significant. Right now. We're looking at probably about

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Speaker 1: a fifty chance, which isn't really telling you telling you

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Speaker 1: that much in terms of it being a bit of

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Speaker 1: a of a coin toss, but that is a high

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Speaker 1: and if you think about our recession probability indicator, that

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Speaker 1: is a relatively high percentage. So you have to account

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Speaker 1: for those risks in your portfolio. Whether we do or not,

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Speaker 1: we are facing an economic slowdown and we do have

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Speaker 1: to account for that. Yeah, you mentioned that you'd like

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Speaker 1: to focus on private investments and and real assets, and

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Speaker 1: we had an example of a private investment today that

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Speaker 1: was thumbs down from investors, Adobe buying Figma for about

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Speaker 1: twenty billion dollars. The issue, I think is that in

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Speaker 1: the private markets, we don't have mark to market every

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Speaker 1: day like we do in the public markets, and so

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Speaker 1: assessing valuation could be difficult. I'm not asking you if

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Speaker 1: Adobe overpaid, but how do you how do you avoid

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Speaker 1: overpaying in the private markets. Yeah, that is a difficult problem,

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Speaker 1: especially right now as we're seeing valuations in in UH

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Speaker 1: in public securities come come down, and you're expecting some

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Speaker 1: eventual mark to market that's going to mark down the

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Speaker 1: valuations in in private markets. The best thing can really

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Speaker 1: do in that respect is is work with a very

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Speaker 1: good manager who who is able to take advantage of

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Speaker 1: of of assets right now where valuations have come down,

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Speaker 1: are careful with how they deploy how they deploy capital.

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Speaker 1: But you are eventually likely to see some reckoning from

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Speaker 1: evaluation perspective in terms of what you get from rates

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Speaker 1: and returns on private equity. But yes, it does, it

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Speaker 1: does occur with with with a lag. But in the

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Speaker 1: environment where we expect inflation to remain relatively high, where

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Speaker 1: we see some growth, some growth weakness, you can still

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Speaker 1: take advantage of the illiquidity premium in private market. So

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Speaker 1: it still does make sense both as a hedge against

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Speaker 1: inflation and it's an area where you can still achieve

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Speaker 1: relatively attractive returns. Alex I took China. We are awaiting

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Speaker 1: the data dump in just over ll I just under

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Speaker 1: two hours time. I think again expected to show some

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Speaker 1: concerns about the economy. How investable is China in your view?

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Speaker 1: You have to be selective. You have to be selective,

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Speaker 1: and I think you have to right size it within

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Speaker 1: the context of your greater portfolio. There certainly are our

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Speaker 1: head winds, uh, not just from the rolling rock lockdowns,

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Speaker 1: the impact on consumption from from zero COVID policies, but

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Speaker 1: then certainly as well the head winds from the property sector.

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Speaker 1: Property sector that's likely gotta see de leveraging over at

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Speaker 1: least a couple more quarters, and as a large engine

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Speaker 1: and driver of growth that that has been is really

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Speaker 1: turning from a tail wind to a headwind. So there

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Speaker 1: are pockets that are attractive areas where there are issuing

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Speaker 1: more policy support, where there is silk growth, where it's

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Speaker 1: v s or renewables. But it's really about being much

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Speaker 1: more selective and and also just making sure that you

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Speaker 1: have a well diversified portfolio, not taking too large of

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Speaker 1: a concentrated position. Looking at w t I back towards

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Speaker 1: eighty four dollars a barrel bent the benchmark losing about

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Speaker 1: two percent this week. You're saying oil price is well

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Speaker 1: supported and the energy sector among one of the most

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Speaker 1: undervalued ones. Tell us your thoughts here and your plays

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Speaker 1: in this sector. Yeah, we think that oil prices could remain,

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Speaker 1: could remain relatively high. So even though we've seen inventories

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Speaker 1: inventories rise, we think that broadly on the supply side,

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Speaker 1: that supply will remain relatively type keeping, keeping oil prices supported.

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Speaker 1: And when we look at when we look at the

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Speaker 1: future and we expect inflation to to to remain relatively

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Speaker 1: high old oaks peeking and coming down. That does also

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Speaker 1: that does also present a pretty decent hedge in a portfolio.

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Speaker 1: It's been the only really really decent performer so far

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Speaker 1: this year. Even though it has rallied quite a bit,

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Speaker 1: we still see some some value in in the energy

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Speaker 1: sector and energy equities. So on the big story, the

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Speaker 1: big macro story, and with the FED meeting coming up,

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Speaker 1: just listening to Doug's data check there, Uh, you know,

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Speaker 1: it's football season. The clock has just run out. The

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Speaker 1: final score hard landing one, soft landing zero. I don't

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Speaker 1: know if the clock is as run out yet, but

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Speaker 1: the you're definitely moving the goalpost quite a bit and

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Speaker 1: making it a lot more difficult, uh for for the

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Speaker 1: FED to achieve a soft landing. I think when we

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Speaker 1: look at core inflation over the last couple of months,

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Speaker 1: it last month it fell, and it it got market

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Speaker 1: and quite quite a few UH participants excited that we're

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Speaker 1: we're finally seeing it peak and fall. But then with

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Speaker 1: the most recent print, we're seeing that actually it's been

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Speaker 1: fairly consistent. And when you look at the underlying, the

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Speaker 1: underlying drivers of inflation, with with rents quite high and

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Speaker 1: good still quite high, it does. It does put further

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Speaker 1: pressure on the FED to hike probably not a hundred

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Speaker 1: but at least seventy five, and I think, even more importantly,

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Speaker 1: likely to keep rates higher for longer until they really

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Speaker 1: see more durable signs that the labor market is weakening

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Speaker 1: and that inflation is is more sustainably coming down. How

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Speaker 1: does all of that, and the strength of the dull

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Speaker 1: that complicate things for central bankers in Asia? It certainly does.

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Speaker 1: I think one thing that's surprising is the fact that

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Speaker 1: we haven't seen as much stress from what has been

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Speaker 1: a very very strong dollar environment this year. Certainly historically

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Speaker 1: it does. It does stress emerging markets, say around the world,

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Speaker 1: but particularly particularly in in Asia, but you've seen offset

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Speaker 1: somewhat by high commodity prices, so across the e M complex,

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Speaker 1: strong dollar with strong commodities has been highly highly unusual.

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Speaker 1: But nonetheless strong dollar continue tightening. You you are going

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Speaker 1: to have to see central banks in this region also

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Speaker 1: continue to tighten, just because real rates across most countries

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Speaker 1: are are still are still negative, so they're really not

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Speaker 1: attacking their inflation problem as aggressively as they need to.

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Speaker 1: So you're likely going to see forced continue tightening as well,

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Speaker 1: which does just create a situation with with globalized global

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Speaker 1: synchronized tightening pressure and growth pressure and growth into next

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Speaker 1: year and maybe longer. You know, it's it's tempting to

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Speaker 1: think that interest rates going up, that they may have

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Speaker 1: to stay up for a long time. That you had

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Speaker 1: thirty years of falling rates and low inflation, and you know,

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Speaker 1: we could just be entering into at least a decade

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Speaker 1: of this in in in which case equity prices are

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Speaker 1: probably too high for a long time to come. That

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Speaker 1: that's one thing we've started to look at a little

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Speaker 1: bit more. Of course, this cycle hasn't hasn't ended yet,

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Speaker 1: but how the next cycle might look different from the past,

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Speaker 1: From the post GFC era. If you're looking at capital,

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Speaker 1: then was was quite abundant and you saw yields go

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Speaker 1: go negative across a large swath of of global bonds.

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Speaker 1: Now we're seeing far fewer bonds with negative yields, less

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Speaker 1: capital abundancy, a bit tighter labor markets, a bit tighter

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Speaker 1: into in terms of in terms of commodity markets as well,

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Speaker 1: and whether or not that's going to pressure the next

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Speaker 1: cycle to have slightly higher run rate of inflation, slightly

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Speaker 1: higher higher rates. Uh. Then we then we've become accustomed to,

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Speaker 1: certainly for the past ten plus years, very very quickly.

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Speaker 1: Your top play in Asia, elenks, we like, we like

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Speaker 1: Asian We like Indonesia assion broadly because of the benefit

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Speaker 1: from higher commodity prices. We also see someone of a

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Speaker 1: delayed reopening relative to develop markets. So we're still seeing

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Speaker 1: a quite positive consumption story, a positive reopening story. And

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Speaker 1: in Northeast Asia, you've seen quite a bit of pressure

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Speaker 1: from from the tech sector, high inventories slowdown in terms

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Speaker 1: of tech demand. So within Asia, Southeast Asia is looking

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Speaker 1: relatively attractive. Alex. Always great to have you on. Thank you.

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Speaker 1: Alex Wilf, m D and Head of Investment Strategy Asia

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Speaker 1: at JPMorgan Private Bank with US in our Singapore studio

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Speaker 1: here on Bloomberg Daybreak Asia