WEBVTT - Thomas Taw on the Markets (Audio)

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<v Speaker 1>To get to our guest, Thomas ta, head of a

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<v Speaker 1>pack I shares investment strategy at black Rock. Thomas, great

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<v Speaker 1>to have you with us here on the program. So

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<v Speaker 1>I'm trying to work this out in my head. The

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<v Speaker 1>FED sort of botched it last year and it's really

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<v Speaker 1>fighting back now to restore its reputation. So you know,

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<v Speaker 1>there's a danger that they might go too far. But

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<v Speaker 1>in any case, what's the more powerful for us inflation

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<v Speaker 1>rolling over and starting the head down or the FED

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<v Speaker 1>raising interest rates? Hey, good morning, Yeah, that's that is

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<v Speaker 1>obviously the big question that everyone's asking at the moment.

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<v Speaker 1>You know, I think if we look at the speech

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<v Speaker 1>the Bell gave on on Friday, not not a huge surprise,

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<v Speaker 1>but in terms of how the market reacted to it,

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<v Speaker 1>it's it's not so much that we think that the

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<v Speaker 1>terminal rate will be necessarily that much higher, but it's

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<v Speaker 1>more in the fact that they're basically pushing back on

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<v Speaker 1>the pivot. So the expectation that will get rate cuts

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<v Speaker 1>in the second half of the year I have so

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<v Speaker 1>much somewhat dissipated, and that's obviously had an impact on

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<v Speaker 1>longer duration stocks. But you know, for us, this is

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<v Speaker 1>still very much supply driven type of issue and one

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<v Speaker 1>that really can't be can't be solved by keeping interest

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<v Speaker 1>rates very high for very long. So you know, for us,

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<v Speaker 1>the danger is that the Fed are sort of choosing

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<v Speaker 1>to quell inflation at the expensive growth. Uh, and that's

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<v Speaker 1>going to be very hard to sort of back down

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<v Speaker 1>from over the next three to six months. Is obviously

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<v Speaker 1>the data is lagging, and as we start to stick

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<v Speaker 1>see growth come off, possibly unemployment heading higher, it will

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<v Speaker 1>be it will be more difficult for the FED to

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<v Speaker 1>actually back away from that policy. So I think that's

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<v Speaker 1>the main concern from us, where we are still relatively

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<v Speaker 1>defensive and have been so during this sur during this rally, Okay,

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<v Speaker 1>so relatively defensive, and we heard from Neil Cush Carrier

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<v Speaker 1>as well, saying that the rally you saw from June

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<v Speaker 1>to August not encouraging. What kind of happens towards the

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<v Speaker 1>latter part of the year then in your view, Well,

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<v Speaker 1>I mean, for us, as I said, we're we continue

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<v Speaker 1>to be relatively defensive. So you know, if you look

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<v Speaker 1>at our our asset of the cage over the next

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<v Speaker 1>six months, we're underweight d m U S equities we

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<v Speaker 1>are neutral on on Asia, Asia X, Japan, China, so

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<v Speaker 1>I guess relatively more optimistic on on Asian equities, but

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<v Speaker 1>but certainly not that optimistic on on DM equity. So

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<v Speaker 1>you know, we think that the FED, possibly other central

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<v Speaker 1>banks e CP as well will likely raise rates by

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<v Speaker 1>SIS at the next meeting. Also are are again sort

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<v Speaker 1>of choosing to to fight inflation at the expense of growth,

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<v Speaker 1>and that's obviously going to have a big impact on

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<v Speaker 1>on the economy. So you know, for us staying defensive,

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<v Speaker 1>staying short duration on the fixed income side, and and

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<v Speaker 1>and and picking more defensive type exposures and equity. But

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<v Speaker 1>in the end, the FED is data dependent, so it

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<v Speaker 1>will be watching the data and if the data slows,

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<v Speaker 1>then the FED will slow. Yes, so they so they

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<v Speaker 1>keep telling us um but that that is correct. Yeah,

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<v Speaker 1>but it obviously is a lag mechanism, right, So you know,

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<v Speaker 1>a lot of eyes will be on the NFP. This

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<v Speaker 1>this unemployment is obviously very important to the FED. There

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<v Speaker 1>is there is also a big difference if you look

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<v Speaker 1>at pc which they're watching versus CPI, where you have

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<v Speaker 1>energy and food prices which are really the drivers of

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<v Speaker 1>inflation at the moment. So um, yes, they are data dependent,

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<v Speaker 1>but the data is lagging, and so by the time

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<v Speaker 1>they look to reverse maybe second half of next year,

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<v Speaker 1>then you know, it might be a little bit too

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<v Speaker 1>late in terms of GDP growth. I just mentioned we

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<v Speaker 1>had a stronger than next way to do unfixed for

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<v Speaker 1>a fifth day from the PBOC, and certainly the impact

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<v Speaker 1>in Asian currencies as we see the inflation fight by

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<v Speaker 1>central bankers are reaching quite a bit of havoc and

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<v Speaker 1>causing some concern that we could see the same as

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<v Speaker 1>what we saw in your view on on what China

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<v Speaker 1>is trying to do here to stem the undecline. And

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<v Speaker 1>I guess your outlook for the China economy too, sure, yeah, well,

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<v Speaker 1>I mean all eyes are on the seven handle at

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<v Speaker 1>the moment, but in terms of in terms of the

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<v Speaker 1>outlook on China's to seem very difficult to find bullish

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<v Speaker 1>bullish reasonings for investors to to move into that. I mean,

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<v Speaker 1>over the last couple of weeks, we have seen, um,

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<v Speaker 1>some some optimistic news in terms of the stimulus package

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<v Speaker 1>that we got, uh, some news on good news on

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<v Speaker 1>a d r D listings possibly being uh that situation

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<v Speaker 1>being sort of handled, but uh, all eyes are still

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<v Speaker 1>on the COVID zero situation, and I think until we

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<v Speaker 1>get some kind of inkling from from the China Chinese

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<v Speaker 1>government that uh there is some prospect for it for

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<v Speaker 1>reopening into next year or shift away from COVID zero strategy.

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<v Speaker 1>It seems to me like foreign investors are are shying

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<v Speaker 1>away from from Chinese equities and also Chinese Chinese bond.

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<v Speaker 1>So you know, no matter what we kind of hear

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<v Speaker 1>on on the economy and stimulus and uh an a

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<v Speaker 1>d r D listing, until that situation is kind of

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<v Speaker 1>uh covered, uh, it's going to be quite difficult for

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<v Speaker 1>investors to move back into China. So you know, for us,

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<v Speaker 1>we're still neutral on Chinese equities. For a longer term perspective,

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<v Speaker 1>you know, there are there are reasonings to to buy

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<v Speaker 1>that that asset class, but for for the short term,

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<v Speaker 1>still very volatile. After the Party Congress um, it's debatable

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<v Speaker 1>whether or not Si Jinping doubles down on his restrictive

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<v Speaker 1>policies in many areas tight regulation in such or whether

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<v Speaker 1>or not there's a little more of a comfort zone

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<v Speaker 1>to to open up. I think a lot of people

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<v Speaker 1>would agree with you that there's not very um there's

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<v Speaker 1>not a very strong likelihood that COVID policies will be relaxed.

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<v Speaker 1>But is there at least a chance that perhaps we

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<v Speaker 1>see less regulation going forward. I think there's a very

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<v Speaker 1>strong chance of that. I mean, you know that I've

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<v Speaker 1>I've kind of had the same position over the last

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<v Speaker 1>few months, which which is the less the regulators say,

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<v Speaker 1>the better. I mean, there have been obviously some some

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<v Speaker 1>new implications in terms of of the property sector, et cetera.

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<v Speaker 1>But also one thing that we've been looking at recently

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<v Speaker 1>is is on these heavily regulated, uh impacted companies in

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<v Speaker 1>the in the tech sector, actually the earnings have have

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<v Speaker 1>have beaten expectations. If you look at companies like Maye,

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<v Speaker 1>to On Tens and Ali Baba. You know, not obviously

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<v Speaker 1>not a lot was expected given COVID lockdowns and tech regulation,

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<v Speaker 1>but actually earnings have been relatively better than expected. But

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<v Speaker 1>until we get some shift away from COVID zero policy,

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<v Speaker 1>that doesn't really matter that much because we always have

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<v Speaker 1>the possitibility that we'll get further lockdowns as you're reporting

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<v Speaker 1>on earlier, and that will obviously impact those companies bottom line.

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<v Speaker 1>So everyone is watching that. UM, you know that that

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<v Speaker 1>that speech in October November, whenever we get it, is

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<v Speaker 1>going to be very important. I don't think investors are

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<v Speaker 1>expecting Sheet to come out and say we're moving away

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<v Speaker 1>from COVID zero. But if we get some kind of

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<v Speaker 1>some kind of tiny inkling that maybe you know, quarantine

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<v Speaker 1>rules are changing, or you know, there there's some kind

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<v Speaker 1>of shift in UM, some kind of shift in vaccinations

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<v Speaker 1>or whatever it might be, that that could be a

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<v Speaker 1>possibility for a rally. But until then, you know, I

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<v Speaker 1>expect it's just going to be volatile as the market

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<v Speaker 1>sort of move us within a range where we have

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<v Speaker 1>seen an incredibly fast pivot though is an Asian I

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<v Speaker 1>mean virtually no restrictions anymore, and the likes of Singapore

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<v Speaker 1>and Thailand, Thailand saying they're expecting to welcome a seven

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<v Speaker 1>and a half million overseas tourists in the second half.

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<v Speaker 1>Has this reopening theme across Asian already been priced in? Um,

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<v Speaker 1>I think a lot of it has been priced in.

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<v Speaker 1>I mean, it's been fairly well documented. Uh. You know,

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<v Speaker 1>Thailand clearly has a very high sensitivity sensitivity towards tourism,

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<v Speaker 1>and you know that's that's obviously very impactful. Acciona has

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<v Speaker 1>done very well this year relative to the rest of

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<v Speaker 1>the markets. It's it's something we were kind of looking

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<v Speaker 1>at as sort of the last COVID rotation trade in

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<v Speaker 1>terms of you know, starting with China and then into

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<v Speaker 1>the US one into Europe, uh and then finally into a.

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<v Speaker 1>Siena is kind of the last, the last, the last

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<v Speaker 1>region to actually move away from that. So a lot

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<v Speaker 1>of it has been priced in, but you know, we

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<v Speaker 1>still need to see the data, so I think investors

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<v Speaker 1>will continue to buy that because other regions are still

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<v Speaker 1>under pressure, all right, Thomas, Always a pleasure, Thank you,

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<v Speaker 1>Thomas to ahead of a pack I shares investment strategy

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<v Speaker 1>at black Rock, joining us from Hong Kong