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Speaker 1: From tequila in Mexico to Chinese stocks. Patrick Chavonnick joins us. Now,

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Speaker 1: Chinese stocks have been under pressure this year, but some

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Speaker 1: news about the MSCI Global Market indexes helped give him

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Speaker 1: quite a boost today. Patrick, of course, is chief strategist

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Speaker 1: at Silver Crest Asset Management. Welcome Patrick, So what a

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Speaker 1: day and that one minute like crash in the Chinese

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Speaker 1: stock market? Uh, what do you make? First of all,

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Speaker 1: what happened today? And what do you think drove it? Um? Um,

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Speaker 1: you got me. He caught me a little bit off

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Speaker 1: the Chinese stock market. We had that, we had the

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Speaker 1: boost today, We had Goldman Sacks saying it was likely

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Speaker 1: the Nation shares would be included in the m s

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Speaker 1: c I Global Benchmark Index, the Shanghai Composite up three

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Speaker 1: point three per cent, and then of course we did

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Speaker 1: have that momentary, that one minute down draft in the

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Speaker 1: stock market, which apparently had to do with just some

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Speaker 1: of the specul lation around this whole question whether the

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Speaker 1: Chinese talks will get him in because this has been

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Speaker 1: an ongoing story and I'm glad you filled me in

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Speaker 1: on the latest, but this has been an ongoing story

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Speaker 1: where last year there was a lot of talk about

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Speaker 1: China's stock market domestic shares being added to the m

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Speaker 1: s c I index. Uh. It's kind of come around

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Speaker 1: again UH this year. UH. And and I was afraid

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Speaker 1: from your statement that they had made a decision. But

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Speaker 1: but essentially there's just like last year, there's a lot

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Speaker 1: of talk that if they do include them in the

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Speaker 1: global indices, that this will cause a rush of investors

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Speaker 1: into those shares, and so there's a lot of speculation. Um.

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Speaker 1: But there's also a lot of downside the China's market.

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Speaker 1: You know, they have spent the last year intervening, UH

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Speaker 1: in order to keep the Chinese stock market up and

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Speaker 1: so UM. So this is kind of a tug of

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Speaker 1: war between expectations. Is the market overvalued as a lot

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Speaker 1: of people think, I would argue it is, uh, or

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Speaker 1: are we just on the verge of a whole bunch

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Speaker 1: of new investors coming in? Patrick, I'm wonder if you

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Speaker 1: just focused on the United States for a moment and

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Speaker 1: tell me some of the concerns that you have over

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Speaker 1: the performance of the US economy, beginning with inventory to

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Speaker 1: sales ratios. What does that mean and why are you concerned?

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Speaker 1: Well over the past year, Uh, we've seen UH, inventories rise.

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Speaker 1: UH they as as a relatives to sales. Part of

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Speaker 1: that is because sales have been stumbling a little bit.

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Speaker 1: We got some good news today, UH with the biggest

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Speaker 1: surge in in UM in consumer spending monthly surge since

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Speaker 1: the beginning of the beginning of the recovery. But UH,

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Speaker 1: this has been an ongoing issue and it's something where

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Speaker 1: it's it's a drag on the willingness of of of

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Speaker 1: businesses to ramp up output and to stock and to

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Speaker 1: stockpile more inventory because they are concerned that they don't

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Speaker 1: necessarily with these elevated inventory numbers, that demand so far

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Speaker 1: hasn't materialized. So it's not necessarily an indicator of an

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Speaker 1: imminent recession. But it is a vulnerability point in the

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Speaker 1: US economy. You know, the Fed reserve UM cut back,

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Speaker 1: it's dot plot, you know, not four rate hikes in

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Speaker 1: two seen just two after all the volatility and global markets,

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Speaker 1: particularly in China and the slowdown in China, how far

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Speaker 1: it would go the yuan continues to weakend, this is

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Speaker 1: a real big story in China. What how does China

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Speaker 1: look to you? Because that's another reason why the stock

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Speaker 1: market is under pressure. But when you see a jump

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Speaker 1: like today, I think after the stock market gets beaten

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Speaker 1: up in China, you think maybe it's time to hop in.

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Speaker 1: I think you're saying it isn't. Yeah, I think you've

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Speaker 1: got to separate, um, the fundamentals of the Chinese economy,

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Speaker 1: which continue to slow despite there was a lot of

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Speaker 1: talk just in past couple of months about that China

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Speaker 1: would pouring more stimulus and that Chinese economy would turn around.

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Speaker 1: I think there's a gradual realization that that has not happened. Uh,

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Speaker 1: that that more credit is not really helping to boost

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Speaker 1: the Chinese economy. Uh. So you've got the fundamentals which

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Speaker 1: are poor and perhaps getting worse, and then you've got

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Speaker 1: sort of the speculative angle, uh that that, uh, are

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Speaker 1: they going to suddenly open the floodgates and it's going

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Speaker 1: to cause a lot of people to rush in. But

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Speaker 1: remember a year ago, the same conversation was taking place

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Speaker 1: MSc I chose not to include them, and that I

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Speaker 1: think was that that really was kind of the peak

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Speaker 1: of the bubble in China. And what happened was, uh,

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Speaker 1: there was a shift from oh, all this money is

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Speaker 1: going to flow into a free focus on fundamentals, and

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Speaker 1: then the bottom fell out of the market when they

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Speaker 1: focused on those fundamentals. So, you know, I think people

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Speaker 1: need to get people need to be worry about getting

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Speaker 1: ca up in the hype of China being added to

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Speaker 1: the MSCI Index as though that somehow changes the trajectory

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Speaker 1: of the Chinese economy, which it doesn't. Patrick What about

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Speaker 1: the trajectory of emerging markets such as Vietnam, Indonesia, Malaysia,

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Speaker 1: those countries that depend in some symbiotic way on what

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Speaker 1: goes on in China really depends on what the relationship

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Speaker 1: is with China. Some of them, uh, our feeding China's

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Speaker 1: investment boomer have fed China's investmentment. For instance, Indonesia exporting

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Speaker 1: coal to China that has been hit very hard. Uh.

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Speaker 1: But there are other ways where they compete with China

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Speaker 1: and so Vietnam for instances, the potential potentially benefits from

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Speaker 1: some of the difficulties that the Chinese economy is having

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Speaker 1: right now. And in terms of emerging markets more broadly,

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Speaker 1: you know, we like to throw everything into a bucket

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Speaker 1: of emerging markets. Say which way are emerging market is

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Speaker 1: going to go? Are they better worse? Bet than developed markets.

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Speaker 1: But the list that you know, the list that you

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Speaker 1: ran off and we could make it a much given

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Speaker 1: longer list kind of highlights the fact that we're not

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Speaker 1: talking about a single story here. We're talking about different

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Speaker 1: stories some of these some of these economies are commodity producers,

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Speaker 1: some of them are our commodity importers. Some of them

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Speaker 1: are moving forward with reforms, some of them are backtracking.

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Speaker 1: Some of them are tied to China and China's investment booms.

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Speaker 1: Some of them are tied to Europe. Some of them

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Speaker 1: are tied in like Mexico, to the United States. So

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Speaker 1: we thank you very much. Patrick Chauvanick. He is Managing

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Speaker 1: director's Chief Strategists, Silver Crest Asset Management