Speaker 1: To get to our guest, Thomas ta, head of a
Speaker 1: pack I shares investment strategy at black Rock. Thomas, great
Speaker 1: to have you with us here on the program. So
Speaker 1: I'm trying to work this out in my head. The
Speaker 1: FED sort of botched it last year and it's really
Speaker 1: fighting back now to restore its reputation. So you know,
Speaker 1: there's a danger that they might go too far. But
Speaker 1: in any case, what's the more powerful for us inflation
Speaker 1: rolling over and starting the head down or the FED
Speaker 1: raising interest rates? Hey, good morning, Yeah, that's that is
Speaker 1: obviously the big question that everyone's asking at the moment.
Speaker 1: You know, I think if we look at the speech
Speaker 1: the Bell gave on on Friday, not not a huge surprise,
Speaker 1: but in terms of how the market reacted to it,
Speaker 1: it's it's not so much that we think that the
Speaker 1: terminal rate will be necessarily that much higher, but it's
Speaker 1: more in the fact that they're basically pushing back on
Speaker 1: the pivot. So the expectation that will get rate cuts
Speaker 1: in the second half of the year I have so
Speaker 1: much somewhat dissipated, and that's obviously had an impact on
Speaker 1: longer duration stocks. But you know, for us, this is
Speaker 1: still very much supply driven type of issue and one
Speaker 1: that really can't be can't be solved by keeping interest
Speaker 1: rates very high for very long. So you know, for us,
Speaker 1: the danger is that the Fed are sort of choosing
Speaker 1: to quell inflation at the expensive growth. Uh, and that's
Speaker 1: going to be very hard to sort of back down
Speaker 1: from over the next three to six months. Is obviously
Speaker 1: the data is lagging, and as we start to stick
Speaker 1: see growth come off, possibly unemployment heading higher, it will
Speaker 1: be it will be more difficult for the FED to
Speaker 1: actually back away from that policy. So I think that's
Speaker 1: the main concern from us, where we are still relatively
Speaker 1: defensive and have been so during this sur during this rally, Okay,
Speaker 1: so relatively defensive, and we heard from Neil Cush Carrier
Speaker 1: as well, saying that the rally you saw from June
Speaker 1: to August not encouraging. What kind of happens towards the
Speaker 1: latter part of the year then in your view, Well,
Speaker 1: I mean, for us, as I said, we're we continue
Speaker 1: to be relatively defensive. So you know, if you look
Speaker 1: at our our asset of the cage over the next
Speaker 1: six months, we're underweight d m U S equities we
Speaker 1: are neutral on on Asia, Asia X, Japan, China, so
Speaker 1: I guess relatively more optimistic on on Asian equities, but
Speaker 1: but certainly not that optimistic on on DM equity. So
Speaker 1: you know, we think that the FED, possibly other central
Speaker 1: banks e CP as well will likely raise rates by
Speaker 1: SIS at the next meeting. Also are are again sort
Speaker 1: of choosing to to fight inflation at the expense of growth,
Speaker 1: and that's obviously going to have a big impact on
Speaker 1: on the economy. So you know, for us staying defensive,
Speaker 1: staying short duration on the fixed income side, and and
Speaker 1: and and picking more defensive type exposures and equity. But
Speaker 1: in the end, the FED is data dependent, so it
Speaker 1: will be watching the data and if the data slows,
Speaker 1: then the FED will slow. Yes, so they so they
Speaker 1: keep telling us um but that that is correct. Yeah,
Speaker 1: but it obviously is a lag mechanism, right, So you know,
Speaker 1: a lot of eyes will be on the NFP. This
Speaker 1: this unemployment is obviously very important to the FED. There
Speaker 1: is there is also a big difference if you look
Speaker 1: at pc which they're watching versus CPI, where you have
Speaker 1: energy and food prices which are really the drivers of
Speaker 1: inflation at the moment. So um, yes, they are data dependent,
Speaker 1: but the data is lagging, and so by the time
Speaker 1: they look to reverse maybe second half of next year,
Speaker 1: then you know, it might be a little bit too
Speaker 1: late in terms of GDP growth. I just mentioned we
Speaker 1: had a stronger than next way to do unfixed for
Speaker 1: a fifth day from the PBOC, and certainly the impact
Speaker 1: in Asian currencies as we see the inflation fight by
Speaker 1: central bankers are reaching quite a bit of havoc and
Speaker 1: causing some concern that we could see the same as
Speaker 1: what we saw in your view on on what China
Speaker 1: is trying to do here to stem the undecline. And
Speaker 1: I guess your outlook for the China economy too, sure, yeah, well,
Speaker 1: I mean all eyes are on the seven handle at
Speaker 1: the moment, but in terms of in terms of the
Speaker 1: outlook on China's to seem very difficult to find bullish
Speaker 1: bullish reasonings for investors to to move into that. I mean,
Speaker 1: over the last couple of weeks, we have seen, um,
Speaker 1: some some optimistic news in terms of the stimulus package
Speaker 1: that we got, uh, some news on good news on
Speaker 1: a d r D listings possibly being uh that situation
Speaker 1: being sort of handled, but uh, all eyes are still
Speaker 1: on the COVID zero situation, and I think until we
Speaker 1: get some kind of inkling from from the China Chinese
Speaker 1: government that uh there is some prospect for it for
Speaker 1: reopening into next year or shift away from COVID zero strategy.
Speaker 1: It seems to me like foreign investors are are shying
Speaker 1: away from from Chinese equities and also Chinese Chinese bond.
Speaker 1: So you know, no matter what we kind of hear
Speaker 1: on on the economy and stimulus and uh an a
Speaker 1: d r D listing, until that situation is kind of
Speaker 1: uh covered, uh, it's going to be quite difficult for
Speaker 1: investors to move back into China. So you know, for us,
Speaker 1: we're still neutral on Chinese equities. For a longer term perspective,
Speaker 1: you know, there are there are reasonings to to buy
Speaker 1: that that asset class, but for for the short term,
Speaker 1: still very volatile. After the Party Congress um, it's debatable
Speaker 1: whether or not Si Jinping doubles down on his restrictive
Speaker 1: policies in many areas tight regulation in such or whether
Speaker 1: or not there's a little more of a comfort zone
Speaker 1: to to open up. I think a lot of people
Speaker 1: would agree with you that there's not very um there's
Speaker 1: not a very strong likelihood that COVID policies will be relaxed.
Speaker 1: But is there at least a chance that perhaps we
Speaker 1: see less regulation going forward. I think there's a very
Speaker 1: strong chance of that. I mean, you know that I've
Speaker 1: I've kind of had the same position over the last
Speaker 1: few months, which which is the less the regulators say,
Speaker 1: the better. I mean, there have been obviously some some
Speaker 1: new implications in terms of of the property sector, et cetera.
Speaker 1: But also one thing that we've been looking at recently
Speaker 1: is is on these heavily regulated, uh impacted companies in
Speaker 1: the in the tech sector, actually the earnings have have
Speaker 1: have beaten expectations. If you look at companies like Maye,
Speaker 1: to On Tens and Ali Baba. You know, not obviously
Speaker 1: not a lot was expected given COVID lockdowns and tech regulation,
Speaker 1: but actually earnings have been relatively better than expected. But
Speaker 1: until we get some shift away from COVID zero policy,
Speaker 1: that doesn't really matter that much because we always have
Speaker 1: the possitibility that we'll get further lockdowns as you're reporting
Speaker 1: on earlier, and that will obviously impact those companies bottom line.
Speaker 1: So everyone is watching that. UM, you know that that
Speaker 1: that speech in October November, whenever we get it, is
Speaker 1: going to be very important. I don't think investors are
Speaker 1: expecting Sheet to come out and say we're moving away
Speaker 1: from COVID zero. But if we get some kind of
Speaker 1: some kind of tiny inkling that maybe you know, quarantine
Speaker 1: rules are changing, or you know, there there's some kind
Speaker 1: of shift in UM, some kind of shift in vaccinations
Speaker 1: or whatever it might be, that that could be a
Speaker 1: possibility for a rally. But until then, you know, I
Speaker 1: expect it's just going to be volatile as the market
Speaker 1: sort of move us within a range where we have
Speaker 1: seen an incredibly fast pivot though is an Asian I
Speaker 1: mean virtually no restrictions anymore, and the likes of Singapore
Speaker 1: and Thailand, Thailand saying they're expecting to welcome a seven
Speaker 1: and a half million overseas tourists in the second half.
Speaker 1: Has this reopening theme across Asian already been priced in? Um,
Speaker 1: I think a lot of it has been priced in.
Speaker 1: I mean, it's been fairly well documented. Uh. You know,
Speaker 1: Thailand clearly has a very high sensitivity sensitivity towards tourism,
Speaker 1: and you know that's that's obviously very impactful. Acciona has
Speaker 1: done very well this year relative to the rest of
Speaker 1: the markets. It's it's something we were kind of looking
Speaker 1: at as sort of the last COVID rotation trade in
Speaker 1: terms of you know, starting with China and then into
Speaker 1: the US one into Europe, uh and then finally into a.
Speaker 1: Siena is kind of the last, the last, the last
Speaker 1: region to actually move away from that. So a lot
Speaker 1: of it has been priced in, but you know, we
Speaker 1: still need to see the data, so I think investors
Speaker 1: will continue to buy that because other regions are still
Speaker 1: under pressure, all right, Thomas, Always a pleasure, Thank you,
Speaker 1: Thomas to ahead of a pack I shares investment strategy
Speaker 1: at black Rock, joining us from Hong Kong