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Speaker 1: Let's get to our guests now. Katherine Young is investment

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Speaker 1: director at Fidelity International, joining us in our Hong Kong studio.

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Speaker 1: Always great to have you on, Katherine. So China really

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Speaker 1: seeking to stabilize the property market with lions lower rates.

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Speaker 1: Brian was telling us we could have a further triple

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Speaker 1: our cut too. Is this enough or do we need

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Speaker 1: further government stimulus too? So the issue really with the

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Speaker 1: property sector at the moment is that not only do

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Speaker 1: the policy makers have to protect prices so the systemic risk,

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Speaker 1: but they also have to make up the funding shortfalls

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Speaker 1: to complete these projects owed to the home by so

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Speaker 1: that you have this sort of social stability angle. So

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Speaker 1: what is likely to happen? I mean, we have seen

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Speaker 1: a you know, a property bubble emerge over the years.

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Speaker 1: So it's about twenty of g d P last year

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Speaker 1: versus let's say the US bubble and oh six which

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Speaker 1: was six six and a half percent of g d P.

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Speaker 1: So we do need to see some short term pain. Now,

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Speaker 1: this pain isn't going to put in danger China's long

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Speaker 1: term growth trajectory or it's financial viability, but we are

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Speaker 1: going to see some defaults and as a result, of

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Speaker 1: the default consolidated market. So some of the bigger players

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Speaker 1: who are better manage a better balance sheets, R and

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Speaker 1: DED going to get bigger over the next three five years.

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Speaker 1: When it comes to the overall economic slowdown, I mean

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Speaker 1: we heard earlier that Laylan Miller says unlikely to get

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Speaker 1: five and a half percent. I think we all agree

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Speaker 1: on that point. What's kind of your target and what

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Speaker 1: is going to help get us to even around three

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Speaker 1: point nine to four percent by the end of the year. Yeah,

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Speaker 1: the current TOLF five and a half percent is somewhat

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Speaker 1: of a challenge. I guess when you look at China,

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Speaker 1: it feels like we're sort of treading water at this point.

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Speaker 1: So it doesn't feel like we're going to see another

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Speaker 1: big inflection point, So no big step down from this point.

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Speaker 1: But at the same time, the earnings and the policy

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Speaker 1: cycle just don't feel strong enough to get things turning around.

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Speaker 1: So it's very much a case of sentiment on the

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Speaker 1: ground and with the lockdowns and the impact of the

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Speaker 1: lockdowns some of the toll that's had on consumption as

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Speaker 1: well as industrial activities. Take that plus also the heat wave,

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Speaker 1: the concerns about property, so it's all these issues combined,

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Speaker 1: which I think is sort of concerning the people know

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Speaker 1: both so really as well as investors. So it's going

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Speaker 1: to take further stimulus going forward. And does that mean

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Speaker 1: China's uninvestable right now? I mean we're starting to get

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Speaker 1: a lot of those bullish calls fade somewhat. Absolutely not.

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Speaker 1: I think we still have to think about the long

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Speaker 1: term picture of China. And you know, China is in

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Speaker 1: a very different place versus a lot of other economies

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Speaker 1: around the world when it's when we look at policy,

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Speaker 1: both from a COVID policy point of view as well

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Speaker 1: as a fiscal and monetary point of view. But the

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Speaker 1: PBOC is stuck in a bit of a conundrum though,

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Speaker 1: because they can't aggressively ease as the rest of the

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Speaker 1: world aggressively tightens due to trade issues to the currency issues,

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Speaker 1: so there isn't that much room to ease on the

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Speaker 1: Darren side. But they still have the tool set to

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Speaker 1: add supporter of measures. And I think relatively speaking, we

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Speaker 1: saw China outperform in April, May had a lull and July.

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Speaker 1: We're probably going to see it resume its out performance

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Speaker 1: in October November, especially after this earning season, and we

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Speaker 1: see earnings being cut again and then a reassessment of valuations.

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Speaker 1: So you are saying Chinese equities do remain very attractive

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Speaker 1: over the longer term. Just tell us about where you're

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Speaker 1: looking particularly, and is that in the tech space. When

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Speaker 1: we've got the hang saying take index down some sixty

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Speaker 1: from the February one peak, it's probably not going to

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Speaker 1: be a beta rally anymore. So you know, over the

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Speaker 1: past few months or year, you've seen, for example, value

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Speaker 1: names outperformed by around temper cent versus growth names were

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Speaker 1: over that period. And not every value name is doing well,

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Speaker 1: not every growth name is underperforming. Given the interest rate

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Speaker 1: cycle though and the macro uncertainty, what's really key is

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Speaker 1: looking for those companies which still have this somewhat earnings

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Speaker 1: visibility coming through. So at this juncture of value or

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Speaker 1: defensive businesses tend to look more attractive. Having said that,

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Speaker 1: when we look at technology, I mean just take memory

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Speaker 1: for example, global memory. China consumes about global memory around

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Speaker 1: fifty to sixty percent of memory production whoccurs in China.

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Speaker 1: So even if you can't find a Chinese name that

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Speaker 1: fits your investment criteria, you can still access that kind

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Speaker 1: of demand, and I think that's why the consumption story,

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Speaker 1: I think the rise of the domestic investor, they're very,

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Speaker 1: very powerful long term themes. You're also saying focus on

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Speaker 1: the dividend policy. So when we're in the ending season,

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Speaker 1: what do you mean by that? Just checking whether or

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Speaker 1: not there is a good return and how are you

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Speaker 1: sort of playing that in the market. Even though we're

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Speaker 1: seeing some earnings cuts, what's been fascinating is this continued

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Speaker 1: focus on divingdend payouts and upward dividend payouts, and it

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Speaker 1: access somewhat of a cushion during this period of volatility.

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Speaker 1: So for me, but an E. S G perspective, you're

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Speaker 1: seeing improving governance as many companies, a lot of them

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Speaker 1: by the way our state on enterprises. You're seeing these

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Speaker 1: companies really rewarding minority shareholders through this income stream. And

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Speaker 1: again it feeds into the rise of the domestic investors,

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Speaker 1: because domestic investors are looking more at Chinese equities over

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Speaker 1: the long term in terms of that broader investment horizon

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Speaker 1: versus just hunting the market. When we look at the

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Speaker 1: slowdown though in China, I mean that's starting to be

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Speaker 1: reflected more broad Two across the region. To look at

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Speaker 1: Taiwan export orders contracting in July, South Korea early export

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Speaker 1: numbers virtually unchanged. How much of a worry is this

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Speaker 1: slowdown for the broader region if we're not sort of

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Speaker 1: at the point where we thought China would be recovering

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Speaker 1: at this point in the cycle. I think when you

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Speaker 1: look globally ex China, it's still that focus on on

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Speaker 1: global inflation and demand and even visibility for exports out

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Speaker 1: of Asia going into Christmas, that visibility is really not there.

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Speaker 1: So even if you could argue that global inflation is peaking,

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Speaker 1: the whole cycle in terms of tightening monetary policy is

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Speaker 1: definitely not peeking. So that's still the worry that remains.

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Speaker 1: And when you look at that angle versus China, that's

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Speaker 1: why China in terms of benign inflation, having the policy

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Speaker 1: tool set, should they need to further support the market.

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Speaker 1: It's again that long term angle that we're looking at.

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Speaker 1: But yeah, definitely across the region, it's it's this sort

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Speaker 1: of treading water idea and almost waiting for the October

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Speaker 1: November Congress to occur and use flow out of that,

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Speaker 1: and when it comes to whether or not we've seen

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Speaker 1: peak inflation and these recessionary fears. How hawkus do you

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Speaker 1: think we're going to see the FED at Jackson Hole

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Speaker 1: this week likely to continue to be hawkish. And then

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Speaker 1: you also now have the ECB. So again, ex China,

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Speaker 1: you're still seeing this policy or the cycle the biases

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Speaker 1: definitely towards further tightening. Is there anywhere, Katherine, that you

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Speaker 1: are looking for some potential I know you say you

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Speaker 1: like Chinese equities very attractive over the longer term, but

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Speaker 1: in the short terms some potential upside just very quickly.

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Speaker 1: You know. Again, Asia still has that domestic demand story

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Speaker 1: coming through. You still have the rise of the middle

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Speaker 1: class urbanization. So from a D M E M perspective,

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Speaker 1: Asia is a carve out. Still makes a lot of

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Speaker 1: sense for us. All right, Catherine, always great to have

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Speaker 1: you with us. Katherine Young as investment director at Fidelity

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Speaker 1: International with us in our Hong Kong studio,