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Speaker 1: Now let's get to our guest here and called er

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Speaker 1: head of Equity Research for Asia at UBP SO globally here,

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Speaker 1: and we have this debate about whether or not we'll

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Speaker 1: have a soft landing in the global economy, and in

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Speaker 1: China we have a kind of binary situation there where

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Speaker 1: many people think that the Chinese consumer will be really

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Speaker 1: raring to go and get out there and spend. And

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Speaker 1: then there's the other side of the argument, which is

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Speaker 1: uh sclerotic behavior because of how many issues the Chinese

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Speaker 1: economy has, not just the COVID nineteen overhang, but also

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Speaker 1: property and other issues. How do you see the China's

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Speaker 1: story developing? Okay, good morning. So for us, I mean

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Speaker 1: we think China is probably um, you know, at least

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Speaker 1: on a tactical basis, that the best story in Asia

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Speaker 1: and probably globally from an equity markets point of view.

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Speaker 1: So um, you know, obviously, over the last uh let's say,

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Speaker 1: three or four weeks, that the situation or the government

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Speaker 1: response on COVID it has just completely changed how native

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Speaker 1: degrees and so it's going to be we think, pretty

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Speaker 1: uh messy over the next few few weeks and maybe

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Speaker 1: months as this sort of exit wave UM plays out

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Speaker 1: and obviously there's a possibly large human cost associated with

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Speaker 1: that which we will will never be told the numbers

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Speaker 1: probably UM. But looking looking past that, I mean, we

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Speaker 1: think that probably in the next you know, six months

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Speaker 1: from now, you know, China will be fully um you know,

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Speaker 1: emerged from COVID, and we think that's a great positive

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Speaker 1: not just for um, you know, China equity market, but

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Speaker 1: also for things like supply chain issues which have been

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Speaker 1: impacted by COVID, for um, you know, travel especially are

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Speaker 1: in Asia where China Chinese travelers are such a such

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Speaker 1: a large proportion or have pre night pre were such

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Speaker 1: a large proportion of travelers. So we think it's a

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Speaker 1: it's a positive story, but it's a little bit se

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Speaker 1: here at the beginning. Yeah, so you want to take

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Speaker 1: a longer term view. But what about a sake to

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Speaker 1: specific view. What do you do there? Well, I mean,

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Speaker 1: so you know, point others. There are still issues in

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Speaker 1: you know, related to you know, misinvestment, etcetera in the

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Speaker 1: in the past, so we would certainly want to um

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Speaker 1: avoid areas like like real estate, um, the bank sectors

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Speaker 1: also connected to that a little bit, um, But there

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Speaker 1: are other areas which which are positive. So UM, you know,

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Speaker 1: the consumer related areas including UH, let's say what they

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Speaker 1: call in TRYE NYV so new energy vehicles UM, where

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Speaker 1: there's a lot of players there UM, which which are

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Speaker 1: all seeing pretty dramatic increases in deliveries, most of them UM.

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Speaker 1: You know, for example, some of the some of the

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Speaker 1: staples related names we think looked pretty good as well. UM.

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Speaker 1: And insurance UH is a sector which has been knocked

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Speaker 1: down UM and we've we've seen in UM other other

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Speaker 1: markets coming out of the UH out of COVID where

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Speaker 1: you know, insurers have a little bit of UH, there's

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Speaker 1: a little bit extra demand people realize the value of

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Speaker 1: particularly health insurance UM and and that can possibly lead

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Speaker 1: to a bit of pricing power as well. So we

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Speaker 1: think UM beaten down insurance names are also an area

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Speaker 1: to look at. Among the other possible negatives for China

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Speaker 1: would be if Europe, which looks to be in recession,

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Speaker 1: if the US were to also go into recession. Do

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Speaker 1: you see that happening? And is that sort of part

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Speaker 1: of the FED playbook that they really have to do

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Speaker 1: whatever it takes on inflation and so be it? Yeah, So,

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Speaker 1: I mean, so for US, we we sort of agree

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Speaker 1: with those that think that Europe is already in in recession. Um.

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Speaker 1: We think, uh, you know, there's obviously a rising risk

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Speaker 1: of recession in the US. But you know, you you

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Speaker 1: mentioned earlier the comments from from Bill Dudley that, um,

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Speaker 1: you know, the Fed can easily turn it around if

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Speaker 1: they if they need to buy loosening a bit. Um.

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Speaker 1: So the big risk around recession is that in previous recessions,

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Speaker 1: like if we look back at average UH sessions following

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Speaker 1: rate hikes um, EPs falls by about from peak to

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Speaker 1: trough UM. And so far earnings are not down for SMP,

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Speaker 1: and revisions have only just turned a little bit negative. UM.

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Speaker 1: So the real risk of recession is on the earnings part. Um.

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Speaker 1: And I think the comments probably from you know again

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Speaker 1: from from Ludley probably a little bit reassuring in that,

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Speaker 1: you know, the risk is not decline in earnings UM.

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Speaker 1: But to get to your you know, your point, the

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Speaker 1: FED is obviously very focused on inflation and uh, this

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Speaker 1: needs to come down. Um, it's probably peaked. Um. And

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Speaker 1: aren't they sort of boxed in They've they've they've told

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Speaker 1: us that the data matters. They will wait until they

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Speaker 1: see it and not just see it coming down, but

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Speaker 1: getting closer to the two percent target. And that is

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Speaker 1: even knowing that there's a lag defect, it seems like

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Speaker 1: it's almost inevitable then that they go too far, just

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Speaker 1: as they went too far in waiting last year. Absolutely

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Speaker 1: certainly possible. And and don't forget that. You know, if

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Speaker 1: you look at the futures, which you're expecting, you know,

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Speaker 1: the first rate cut to come in the middle of

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Speaker 1: the middle of this year. UM. If you again, if

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Speaker 1: you're compared to previous aggressive rate hike cycles, UM, the

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Speaker 1: fed that you know, the period between the last hike

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Speaker 1: and the first cut has been between six and nine months. UM.

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Speaker 1: So it's uh. Of course they're dependent on on the data. UM.

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Speaker 1: And uh, I think we'll probably see you know, you

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Speaker 1: know again based on the dots, you know, a terminal

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Speaker 1: rate around five or a little higher, and they want

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Speaker 1: to keep it there until uh, we see inflation and

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Speaker 1: pc UM closer to the to the two percent number,

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Speaker 1: as long as the economy can handle it. Now, from

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Speaker 1: an investing perspective, you say you should treat high but

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Speaker 1: easing inflation as an opportunity. Can you describe what you

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Speaker 1: mean by that? Yeah, so we've taken a look again

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Speaker 1: at at you know, previous bouts of high inflation UM,

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Speaker 1: and we've seen that in the period, so there's more

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Speaker 1: on it on a tactical sort of basis in the

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Speaker 1: period when that number is coming down. UM, it's generally

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Speaker 1: a positive I guess trading opportunity for SMP in general UM,

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Speaker 1: but maybe more specifically, we think it's also an opportunity

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Speaker 1: to focus on a few strategies that will probably emerge

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Speaker 1: from here, which is one is to focus on UM

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Speaker 1: companies are going to benefit from reallocation of spending towards

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Speaker 1: things like energy transition and also infrastructure. And then we

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Speaker 1: also think that UM, you know, investors in this sort

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Speaker 1: of period should focus a little bit more UM on

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Speaker 1: dividends and income as as a key driver of total returns,

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Speaker 1: which don't forget over the very long term has contributed

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Speaker 1: about a third of total returns for for SMP five hundred,

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Speaker 1: So we think ahead with that in mind. Do you

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Speaker 1: do you think that bond yields will continue lower? And

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Speaker 1: then what does that do about getting yield? Yeah? I

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Speaker 1: mean so I'm really talking about equity yield UM. So

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Speaker 1: another equity yield strategy which has typically done well UM

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Speaker 1: in previous rate high cycles, especially that you know the

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Speaker 1: second year after the rate hike liftoff UM which obviously

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Speaker 1: will be from this March is a dividend aristocrats, So

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Speaker 1: this is obviously a sort of quality style with a

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Speaker 1: focus on dividend consistency. UM. So in previous aggressive rate

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Speaker 1: high cycles that the twelve the twenty four month period

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Speaker 1: afterwards has been the real sweet spot for for dividend aristocrats,

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Speaker 1: So that's kind of the area that we would want

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Speaker 1: to want to focus on. Okay, well, thanks very much,

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Speaker 1: kieren Um. We are out of time unfortunately. This but

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Speaker 1: a good long session. Thanks very much for joining us.

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Speaker 1: Interesting to hear your views. Kieran Calder, head of Equity

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Speaker 1: Research for Asia at UBP