1 00:00:00,080 --> 00:00:02,560 Speaker 1: To get to our guest, Thomas ta, head of a 2 00:00:02,720 --> 00:00:07,760 Speaker 1: pack I shares investment strategy at black Rock. Thomas, great 3 00:00:07,800 --> 00:00:10,080 Speaker 1: to have you with us here on the program. So 4 00:00:10,119 --> 00:00:11,640 Speaker 1: I'm trying to work this out in my head. The 5 00:00:11,720 --> 00:00:14,440 Speaker 1: FED sort of botched it last year and it's really 6 00:00:14,480 --> 00:00:17,959 Speaker 1: fighting back now to restore its reputation. So you know, 7 00:00:18,040 --> 00:00:20,639 Speaker 1: there's a danger that they might go too far. But 8 00:00:20,720 --> 00:00:24,200 Speaker 1: in any case, what's the more powerful for us inflation 9 00:00:24,360 --> 00:00:27,920 Speaker 1: rolling over and starting the head down or the FED 10 00:00:28,120 --> 00:00:32,159 Speaker 1: raising interest rates? Hey, good morning, Yeah, that's that is 11 00:00:32,240 --> 00:00:34,440 Speaker 1: obviously the big question that everyone's asking at the moment. 12 00:00:34,479 --> 00:00:36,880 Speaker 1: You know, I think if we look at the speech 13 00:00:36,960 --> 00:00:40,280 Speaker 1: the Bell gave on on Friday, not not a huge surprise, 14 00:00:40,320 --> 00:00:42,880 Speaker 1: but in terms of how the market reacted to it, 15 00:00:42,880 --> 00:00:45,360 Speaker 1: it's it's not so much that we think that the 16 00:00:45,479 --> 00:00:48,159 Speaker 1: terminal rate will be necessarily that much higher, but it's 17 00:00:48,200 --> 00:00:51,159 Speaker 1: more in the fact that they're basically pushing back on 18 00:00:51,240 --> 00:00:53,880 Speaker 1: the pivot. So the expectation that will get rate cuts 19 00:00:53,920 --> 00:00:55,880 Speaker 1: in the second half of the year I have so 20 00:00:55,960 --> 00:00:58,560 Speaker 1: much somewhat dissipated, and that's obviously had an impact on 21 00:00:58,680 --> 00:01:02,200 Speaker 1: longer duration stocks. But you know, for us, this is 22 00:01:02,400 --> 00:01:06,720 Speaker 1: still very much supply driven type of issue and one 23 00:01:06,760 --> 00:01:10,600 Speaker 1: that really can't be can't be solved by keeping interest 24 00:01:10,680 --> 00:01:13,400 Speaker 1: rates very high for very long. So you know, for us, 25 00:01:13,440 --> 00:01:16,800 Speaker 1: the danger is that the Fed are sort of choosing 26 00:01:16,840 --> 00:01:20,800 Speaker 1: to quell inflation at the expensive growth. Uh, and that's 27 00:01:20,800 --> 00:01:22,840 Speaker 1: going to be very hard to sort of back down 28 00:01:22,959 --> 00:01:25,319 Speaker 1: from over the next three to six months. Is obviously 29 00:01:25,360 --> 00:01:27,399 Speaker 1: the data is lagging, and as we start to stick 30 00:01:27,520 --> 00:01:31,440 Speaker 1: see growth come off, possibly unemployment heading higher, it will 31 00:01:31,480 --> 00:01:33,160 Speaker 1: be it will be more difficult for the FED to 32 00:01:33,200 --> 00:01:35,400 Speaker 1: actually back away from that policy. So I think that's 33 00:01:35,400 --> 00:01:38,240 Speaker 1: the main concern from us, where we are still relatively 34 00:01:38,280 --> 00:01:42,320 Speaker 1: defensive and have been so during this sur during this rally, Okay, 35 00:01:42,360 --> 00:01:45,760 Speaker 1: so relatively defensive, and we heard from Neil Cush Carrier 36 00:01:45,760 --> 00:01:47,840 Speaker 1: as well, saying that the rally you saw from June 37 00:01:47,840 --> 00:01:50,720 Speaker 1: to August not encouraging. What kind of happens towards the 38 00:01:50,800 --> 00:01:53,880 Speaker 1: latter part of the year then in your view, Well, 39 00:01:53,920 --> 00:01:55,960 Speaker 1: I mean, for us, as I said, we're we continue 40 00:01:55,960 --> 00:01:58,640 Speaker 1: to be relatively defensive. So you know, if you look 41 00:01:58,680 --> 00:02:00,760 Speaker 1: at our our asset of the cage over the next 42 00:02:00,760 --> 00:02:04,520 Speaker 1: six months, we're underweight d m U S equities we 43 00:02:04,600 --> 00:02:08,359 Speaker 1: are neutral on on Asia, Asia X, Japan, China, so 44 00:02:08,840 --> 00:02:12,359 Speaker 1: I guess relatively more optimistic on on Asian equities, but 45 00:02:12,360 --> 00:02:15,760 Speaker 1: but certainly not that optimistic on on DM equity. So 46 00:02:15,960 --> 00:02:18,959 Speaker 1: you know, we think that the FED, possibly other central 47 00:02:18,960 --> 00:02:21,600 Speaker 1: banks e CP as well will likely raise rates by 48 00:02:21,600 --> 00:02:25,040 Speaker 1: SIS at the next meeting. Also are are again sort 49 00:02:25,080 --> 00:02:28,560 Speaker 1: of choosing to to fight inflation at the expense of growth, 50 00:02:28,639 --> 00:02:30,400 Speaker 1: and that's obviously going to have a big impact on 51 00:02:30,400 --> 00:02:33,720 Speaker 1: on the economy. So you know, for us staying defensive, 52 00:02:33,760 --> 00:02:37,639 Speaker 1: staying short duration on the fixed income side, and and 53 00:02:37,639 --> 00:02:41,160 Speaker 1: and and picking more defensive type exposures and equity. But 54 00:02:41,280 --> 00:02:44,480 Speaker 1: in the end, the FED is data dependent, so it 55 00:02:44,520 --> 00:02:46,880 Speaker 1: will be watching the data and if the data slows, 56 00:02:47,160 --> 00:02:51,000 Speaker 1: then the FED will slow. Yes, so they so they 57 00:02:51,080 --> 00:02:53,760 Speaker 1: keep telling us um but that that is correct. Yeah, 58 00:02:53,760 --> 00:02:57,080 Speaker 1: but it obviously is a lag mechanism, right, So you know, 59 00:02:57,120 --> 00:02:59,200 Speaker 1: a lot of eyes will be on the NFP. This 60 00:02:59,600 --> 00:03:03,280 Speaker 1: this unemployment is obviously very important to the FED. There 61 00:03:03,360 --> 00:03:05,440 Speaker 1: is there is also a big difference if you look 62 00:03:05,480 --> 00:03:08,240 Speaker 1: at pc which they're watching versus CPI, where you have 63 00:03:08,360 --> 00:03:11,280 Speaker 1: energy and food prices which are really the drivers of 64 00:03:11,280 --> 00:03:15,760 Speaker 1: inflation at the moment. So um, yes, they are data dependent, 65 00:03:15,800 --> 00:03:18,040 Speaker 1: but the data is lagging, and so by the time 66 00:03:18,080 --> 00:03:21,600 Speaker 1: they look to reverse maybe second half of next year, 67 00:03:21,639 --> 00:03:23,040 Speaker 1: then you know, it might be a little bit too 68 00:03:23,120 --> 00:03:25,960 Speaker 1: late in terms of GDP growth. I just mentioned we 69 00:03:26,040 --> 00:03:28,040 Speaker 1: had a stronger than next way to do unfixed for 70 00:03:28,200 --> 00:03:31,320 Speaker 1: a fifth day from the PBOC, and certainly the impact 71 00:03:31,880 --> 00:03:35,080 Speaker 1: in Asian currencies as we see the inflation fight by 72 00:03:35,160 --> 00:03:37,560 Speaker 1: central bankers are reaching quite a bit of havoc and 73 00:03:37,800 --> 00:03:40,120 Speaker 1: causing some concern that we could see the same as 74 00:03:40,120 --> 00:03:43,840 Speaker 1: what we saw in your view on on what China 75 00:03:43,920 --> 00:03:46,080 Speaker 1: is trying to do here to stem the undecline. And 76 00:03:46,120 --> 00:03:51,560 Speaker 1: I guess your outlook for the China economy too, sure, yeah, well, 77 00:03:51,600 --> 00:03:54,640 Speaker 1: I mean all eyes are on the seven handle at 78 00:03:54,640 --> 00:03:57,840 Speaker 1: the moment, but in terms of in terms of the 79 00:03:57,880 --> 00:04:03,000 Speaker 1: outlook on China's to seem very difficult to find bullish 80 00:04:03,280 --> 00:04:06,040 Speaker 1: bullish reasonings for investors to to move into that. I mean, 81 00:04:06,360 --> 00:04:09,520 Speaker 1: over the last couple of weeks, we have seen, um, 82 00:04:09,600 --> 00:04:13,920 Speaker 1: some some optimistic news in terms of the stimulus package 83 00:04:13,960 --> 00:04:17,599 Speaker 1: that we got, uh, some news on good news on 84 00:04:17,640 --> 00:04:21,120 Speaker 1: a d r D listings possibly being uh that situation 85 00:04:22,240 --> 00:04:25,800 Speaker 1: being sort of handled, but uh, all eyes are still 86 00:04:25,800 --> 00:04:28,880 Speaker 1: on the COVID zero situation, and I think until we 87 00:04:28,960 --> 00:04:32,159 Speaker 1: get some kind of inkling from from the China Chinese 88 00:04:32,160 --> 00:04:35,280 Speaker 1: government that uh there is some prospect for it for 89 00:04:35,360 --> 00:04:38,640 Speaker 1: reopening into next year or shift away from COVID zero strategy. 90 00:04:38,880 --> 00:04:41,240 Speaker 1: It seems to me like foreign investors are are shying 91 00:04:41,279 --> 00:04:45,360 Speaker 1: away from from Chinese equities and also Chinese Chinese bond. 92 00:04:45,480 --> 00:04:47,360 Speaker 1: So you know, no matter what we kind of hear 93 00:04:47,400 --> 00:04:50,000 Speaker 1: on on the economy and stimulus and uh an a 94 00:04:50,080 --> 00:04:53,280 Speaker 1: d r D listing, until that situation is kind of 95 00:04:53,400 --> 00:04:56,359 Speaker 1: uh covered, uh, it's going to be quite difficult for 96 00:04:56,360 --> 00:04:58,600 Speaker 1: investors to move back into China. So you know, for us, 97 00:04:58,640 --> 00:05:02,279 Speaker 1: we're still neutral on Chinese equities. For a longer term perspective, 98 00:05:02,400 --> 00:05:05,160 Speaker 1: you know, there are there are reasonings to to buy 99 00:05:05,200 --> 00:05:07,480 Speaker 1: that that asset class, but for for the short term, 100 00:05:07,800 --> 00:05:12,479 Speaker 1: still very volatile. After the Party Congress um, it's debatable 101 00:05:12,480 --> 00:05:15,839 Speaker 1: whether or not Si Jinping doubles down on his restrictive 102 00:05:15,880 --> 00:05:19,479 Speaker 1: policies in many areas tight regulation in such or whether 103 00:05:19,560 --> 00:05:22,000 Speaker 1: or not there's a little more of a comfort zone 104 00:05:22,080 --> 00:05:25,039 Speaker 1: to to open up. I think a lot of people 105 00:05:25,080 --> 00:05:28,080 Speaker 1: would agree with you that there's not very um there's 106 00:05:28,120 --> 00:05:31,919 Speaker 1: not a very strong likelihood that COVID policies will be relaxed. 107 00:05:32,560 --> 00:05:35,280 Speaker 1: But is there at least a chance that perhaps we 108 00:05:35,360 --> 00:05:39,560 Speaker 1: see less regulation going forward. I think there's a very 109 00:05:39,560 --> 00:05:41,320 Speaker 1: strong chance of that. I mean, you know that I've 110 00:05:41,320 --> 00:05:43,120 Speaker 1: I've kind of had the same position over the last 111 00:05:43,120 --> 00:05:45,240 Speaker 1: few months, which which is the less the regulators say, 112 00:05:45,279 --> 00:05:48,680 Speaker 1: the better. I mean, there have been obviously some some 113 00:05:48,760 --> 00:05:52,839 Speaker 1: new implications in terms of of the property sector, et cetera. 114 00:05:53,000 --> 00:05:55,600 Speaker 1: But also one thing that we've been looking at recently 115 00:05:55,640 --> 00:06:00,800 Speaker 1: is is on these heavily regulated, uh impacted companies in 116 00:06:00,839 --> 00:06:03,279 Speaker 1: the in the tech sector, actually the earnings have have 117 00:06:03,279 --> 00:06:06,160 Speaker 1: have beaten expectations. If you look at companies like Maye, 118 00:06:06,160 --> 00:06:08,919 Speaker 1: to On Tens and Ali Baba. You know, not obviously 119 00:06:08,920 --> 00:06:12,640 Speaker 1: not a lot was expected given COVID lockdowns and tech regulation, 120 00:06:12,760 --> 00:06:15,520 Speaker 1: but actually earnings have been relatively better than expected. But 121 00:06:16,520 --> 00:06:19,080 Speaker 1: until we get some shift away from COVID zero policy, 122 00:06:19,120 --> 00:06:21,479 Speaker 1: that doesn't really matter that much because we always have 123 00:06:21,560 --> 00:06:24,760 Speaker 1: the possitibility that we'll get further lockdowns as you're reporting 124 00:06:24,760 --> 00:06:28,640 Speaker 1: on earlier, and that will obviously impact those companies bottom line. 125 00:06:28,680 --> 00:06:31,640 Speaker 1: So everyone is watching that. UM, you know that that 126 00:06:32,200 --> 00:06:35,040 Speaker 1: that speech in October November, whenever we get it, is 127 00:06:35,080 --> 00:06:37,560 Speaker 1: going to be very important. I don't think investors are 128 00:06:37,560 --> 00:06:39,760 Speaker 1: expecting Sheet to come out and say we're moving away 129 00:06:39,760 --> 00:06:42,279 Speaker 1: from COVID zero. But if we get some kind of 130 00:06:42,640 --> 00:06:46,200 Speaker 1: some kind of tiny inkling that maybe you know, quarantine 131 00:06:46,279 --> 00:06:48,880 Speaker 1: rules are changing, or you know, there there's some kind 132 00:06:48,920 --> 00:06:52,680 Speaker 1: of shift in UM, some kind of shift in vaccinations 133 00:06:52,920 --> 00:06:54,520 Speaker 1: or whatever it might be, that that could be a 134 00:06:54,560 --> 00:06:57,000 Speaker 1: possibility for a rally. But until then, you know, I 135 00:06:57,320 --> 00:06:59,520 Speaker 1: expect it's just going to be volatile as the market 136 00:06:59,560 --> 00:07:01,680 Speaker 1: sort of move us within a range where we have 137 00:07:01,760 --> 00:07:04,839 Speaker 1: seen an incredibly fast pivot though is an Asian I 138 00:07:04,839 --> 00:07:08,200 Speaker 1: mean virtually no restrictions anymore, and the likes of Singapore 139 00:07:08,240 --> 00:07:11,200 Speaker 1: and Thailand, Thailand saying they're expecting to welcome a seven 140 00:07:11,200 --> 00:07:13,400 Speaker 1: and a half million overseas tourists in the second half. 141 00:07:13,440 --> 00:07:19,000 Speaker 1: Has this reopening theme across Asian already been priced in? Um, 142 00:07:19,040 --> 00:07:20,640 Speaker 1: I think a lot of it has been priced in. 143 00:07:20,680 --> 00:07:23,680 Speaker 1: I mean, it's been fairly well documented. Uh. You know, 144 00:07:23,720 --> 00:07:28,840 Speaker 1: Thailand clearly has a very high sensitivity sensitivity towards tourism, 145 00:07:29,600 --> 00:07:32,640 Speaker 1: and you know that's that's obviously very impactful. Acciona has 146 00:07:32,680 --> 00:07:35,040 Speaker 1: done very well this year relative to the rest of 147 00:07:35,040 --> 00:07:37,000 Speaker 1: the markets. It's it's something we were kind of looking 148 00:07:37,040 --> 00:07:41,320 Speaker 1: at as sort of the last COVID rotation trade in 149 00:07:41,440 --> 00:07:43,360 Speaker 1: terms of you know, starting with China and then into 150 00:07:43,360 --> 00:07:48,200 Speaker 1: the US one into Europe, uh and then finally into a. 151 00:07:48,280 --> 00:07:52,040 Speaker 1: Siena is kind of the last, the last, the last 152 00:07:52,080 --> 00:07:54,080 Speaker 1: region to actually move away from that. So a lot 153 00:07:54,080 --> 00:07:55,640 Speaker 1: of it has been priced in, but you know, we 154 00:07:55,680 --> 00:07:57,880 Speaker 1: still need to see the data, so I think investors 155 00:07:57,920 --> 00:08:00,400 Speaker 1: will continue to buy that because other regions are still 156 00:08:00,480 --> 00:08:03,120 Speaker 1: under pressure, all right, Thomas, Always a pleasure, Thank you, 157 00:08:03,160 --> 00:08:06,520 Speaker 1: Thomas to ahead of a pack I shares investment strategy 158 00:08:06,520 --> 00:08:08,200 Speaker 1: at black Rock, joining us from Hong Kong