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Speaker 1: We have Joshua Crab with us now in our studios

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Speaker 1: here in Hong Kong, head of Asia Pacific Equities at Robico. So, Joshua,

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Speaker 1: I mean, just for a few moments on the FED

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Speaker 1: driving a lot of action. We we understand that the

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Speaker 1: central bankers need to talk up a good game here

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Speaker 1: to beat inflation. They don't want the easing of financial

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Speaker 1: conditions that come from investors playing the other side. But investors,

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Speaker 1: you know, they're not stupid either. They're they're going to

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Speaker 1: make assumptions by looking at the data when the FED

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Speaker 1: might make an adjustment. And so that's the sort of

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Speaker 1: give and take that we're in right now. Is it

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Speaker 1: a positive give and take for you or is it

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Speaker 1: kind of negative? Well, it will definitely drive some volatility.

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Speaker 1: I think you know clearly over the last twelve months,

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Speaker 1: the Fed's gone from thinking about not not thinking about

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Speaker 1: raising rates to inflation being number one sort of item

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Speaker 1: on the agenda. Um, you know, I guess from from

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Speaker 1: our perspective, that's driving a lot of volatility. I think

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Speaker 1: the sort of comment you made is right. So every

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Speaker 1: time we sort of see some or some evidence that

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Speaker 1: maybe things are slowing down a little bit, the equity

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Speaker 1: market has a big rally, and then the opposite side

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Speaker 1: of that is then that makes the FED think, Wow,

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Speaker 1: we need to actually be even more staunch in our stance.

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Speaker 1: So I think this is going to be ongoing for

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Speaker 1: a while at least until we saw a dramatic change

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Speaker 1: in the level of core inflation. One of the things

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Speaker 1: we're discussing at the moment is does the FED take

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Speaker 1: it too far? Is there a risk of something breaking.

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Speaker 1: I guess that depends on your perspective of whether you

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Speaker 1: think inflation is the bigger risk or or slow down

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Speaker 1: the economy. Um, you know, I guess the premise. You know,

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Speaker 1: as an observer, more of an equity guy, but as

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Speaker 1: an observer, you know, the FED said they would do

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Speaker 1: anything to sort of stope sort of style event on

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Speaker 1: the way down, and now this sort of reverse course.

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Speaker 1: I think everyone thought this was not going to be symmetric,

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Speaker 1: but it feels like the FED is taking it from

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Speaker 1: a symmetric perspective and they clearly see that the risk

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Speaker 1: is being more inflation. Now, before we were talking, Joshua,

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Speaker 1: you did remind us you are an equity guy, and

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Speaker 1: the last time we spoke, you were noting the big

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Speaker 1: valuation between the US and Asian assets, do you expect

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Speaker 1: their gap to widen or narrow over the coming months. Um,

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Speaker 1: I guess we expected to narrow. Um. I think, you know,

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Speaker 1: it's always interesting how these things play out. You know,

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Speaker 1: the last month we saw obviously another sort of aggressive

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Speaker 1: sell off around ten per cent um, clearly accompanied by

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Speaker 1: a lot of US dollar strength, and Asian markets sort

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Speaker 1: of held their own in that sell off. And I

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Speaker 1: think we've noticed that a lot this year, and those

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Speaker 1: sort of sell offs, the Asian markets have been a

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Speaker 1: little bit better protected, and a lot of ways this

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Speaker 1: sort of reminds me of that sort of period we

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Speaker 1: saw sort of ninety eight to two thousand and three.

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Speaker 1: And during that period, obviously we'd had the Asian financial crisis.

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Speaker 1: Asia sort of came out through that, and they had

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Speaker 1: the big boom in technology stocks, and everyone thought, you know,

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Speaker 1: American companies were going to sort of basically control the

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Speaker 1: world the network effect, etcetera. And you saw a huge

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Speaker 1: valuation gap open up, which is very similar to what

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Speaker 1: we saw, you know, maybe six or twelve months ago.

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Speaker 1: And then as that that unraveled, that sort of you know,

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Speaker 1: heat came out of the market, evaluations came down on

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Speaker 1: and then as we saw stance move more accommodative. Actually

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Speaker 1: between two thousand and three and two thousand and nine

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Speaker 1: two thousand and ten, we saw massive out performance from

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Speaker 1: Asia and that was because it had got two very

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Speaker 1: very cheap valuations um and then we started to see

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Speaker 1: a bit of stimulus going back through the markets. If

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Speaker 1: we sort of think about what we're seeing now again,

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Speaker 1: we saw for different reasons that big divide sort of

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Speaker 1: open up. We're seeing the US particularly then as that

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Speaker 1: coming off quite aggressively, and I think as that starts

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Speaker 1: to stabilize you as we do see you know, more

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Speaker 1: supportive policies coming around, then that you know, Asia coming

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Speaker 1: from pretty close to sort of lows on price to

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Speaker 1: book valuations does have room to expand. So in a

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Speaker 1: lot of ways, that feels quite similar to me. So

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Speaker 1: for investors, time is a real issue here because they

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Speaker 1: see these low valuations and they like the idea of

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Speaker 1: getting companies that they know pretty well training down at twelve, thirteen,

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Speaker 1: fifteen times earnings. But if if, if some of these

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Speaker 1: prices are sticky here and you have the FED keeping

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Speaker 1: interest rates high for maybe a whole year or so

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Speaker 1: up around for an a half percent another central banks

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Speaker 1: in line with that, it kind of feels like dead

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Speaker 1: money for the next year, and so they'll do other

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Speaker 1: things with their money. Is time an important factor for you? Yeah, Look,

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Speaker 1: I think it is because a lot of the things,

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Speaker 1: you know, revolve around policy uncertainty and you have to

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Speaker 1: wait it out. Um. But when you say you look

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Speaker 1: to do other things with your money, or if we

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Speaker 1: look at all the other asset classes again, you know,

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Speaker 1: like whether it's been property, whether it's been bonds in,

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Speaker 1: whether it's been things like crypto, and they've all been

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Speaker 1: quite weak, and that's why it's quite an unusual circumstance.

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Speaker 1: And this is where I come back to the point

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Speaker 1: when you when you look at equity returns, there's three components, right,

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Speaker 1: there's earnings growth, there's multiple expansion, and there's dividend yields.

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Speaker 1: And when earnings are you know, soft to low, and

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Speaker 1: when you multiple expansions going backwards not forwards, then often

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Speaker 1: you're back to the sort of world of yield um.

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Speaker 1: And I think that may be a maybe an area

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Speaker 1: where if things do stay subdued, Garners some more interest

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Speaker 1: about you know, and even I guess we're starting to

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Speaker 1: see a little bit more yield turn up in the

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Speaker 1: very short and you know of the bond curves as well,

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Speaker 1: So maybe that becomes a new focus in terms of equities. Though,

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Speaker 1: what do you like at the moment? I know, you

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Speaker 1: observe that Korean ticket is getting close to the floor.

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Speaker 1: Is there a buy? Yeah? Look again, these are those

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Speaker 1: things where again, you know, I think you need to

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Speaker 1: wait a bit. You know, our market that we've liked

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Speaker 1: the most has been sort of Asia and and particularly Indonesia. Um,

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Speaker 1: now that's no longer a contrarian view. I think you know,

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Speaker 1: that's become you know, it's done well and a lot

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Speaker 1: of people you know, starting to look at it. But

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Speaker 1: at least there we've got You've still got growth, You've

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Speaker 1: got indigenous sort of opportunities, and I think that's why

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Speaker 1: those sort of markets start to stand out. However, I

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Speaker 1: think there are some other opportunities we need to start

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Speaker 1: looking at again. You know, the big Korean you know,

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Speaker 1: tech companies are getting down to pretty close floor valuations

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Speaker 1: we've seen over the last twenty years. Um, you know,

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Speaker 1: clearly the earnings are going to still be under pressure.

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Speaker 1: For a while there, but that is going to create

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Speaker 1: some opportunities. China. Again, we all know that's been a

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Speaker 1: market which is you know very much and everyone's you know,

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Speaker 1: you know, negative books at the moment. But again you've

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Speaker 1: got a lot of attractive value ations there. The problem

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Speaker 1: being policy, We're not sure when things are going to change,

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Speaker 1: and do you look forward to the time when you

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Speaker 1: can kind of set macro aside and focus more on

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Speaker 1: the micro of individual companies. Well, I think that's sort

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Speaker 1: of the environment we're in for a while. I think,

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Speaker 1: you know, again, you know, people have had to come

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Speaker 1: to terms with the fact that the fits change trajectory,

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Speaker 1: people have had to come to terms with the fact

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Speaker 1: that interest rates have gone up, um, and they starting

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Speaker 1: to come to terms of the fact that the economies

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Speaker 1: are slowing down and that macro impact has been very

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Speaker 1: dramatic um. But I think, you know again, it's it's

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Speaker 1: it's hard to sort of have an edge now around

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Speaker 1: those those aspects. So I think focusing more on stocks

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Speaker 1: is going to become a lot more important alright. Joshua

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Speaker 1: crabhead of Asia Pacific Equities of ROBECCO, thanks so much

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Speaker 1: for joining us today on Bloomberg Daybreak Asia,