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Speaker 1: Let's get to our guest. Jim McCafferty is with us.

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Speaker 1: Jim is head of a pack equity research at Nomura.

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Speaker 1: He's on the line from Hong Kong. Rather than focus

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Speaker 1: on the midterm elections here in the state, I want

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Speaker 1: to play to your strength, Jim, and this idea that

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Speaker 1: China maybe at least sometime in the near future willing

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Speaker 1: to pivot away from from COVID zero. Brian was talking

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Speaker 1: about some of the euphoria that seems to have been

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Speaker 1: building in markets across the A pack based on that notion,

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Speaker 1: do you buy into it? Well, I think the euphoria

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Speaker 1: you just mentioned has come from a very very little base.

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Speaker 1: But let me give you some on the grown um

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Speaker 1: understanding of what's going on. I think, firstly in Hong Kong,

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Speaker 1: where am right now. I just wanted to give your

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Speaker 1: listeners a bit of a context. I've been traveling a

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Speaker 1: little bit in the last few weeks in the UK

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Speaker 1: and Japan. Got back into Hong Kong a week ago,

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Speaker 1: and Hong Kong does appear to be back to to

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Speaker 1: almost normality relative to European geographies or or Japan. Travelers

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Speaker 1: arriving at home can can go straight into work situations.

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Speaker 1: There is a health monitoring period, but it's certainly very

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Speaker 1: different from where things were back in one and twenty.

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Speaker 1: I think in the context of mainland China, I had

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Speaker 1: a call last night with our Shanghai office, with our

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Speaker 1: chief equity strategist Gouting, and what he said is there's

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Speaker 1: a bit of a kind of COVID enforcement fatigue happening

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Speaker 1: in Shanghai. So while in theory the government is still

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Speaker 1: mandating this zero COVID policy, the implementation is beginning to

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Speaker 1: I think unraveled a little bit, which does suggest to

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Speaker 1: me that China's perhaps identifying that the practicalities of zero

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Speaker 1: corporate policy are just difficult to implement. And in terms

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Speaker 1: of how you've seen investors kind of position over the

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Speaker 1: last couple of days, despite the fact that China keeps

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Speaker 1: saying it is unswervingly sticking with COVID zero, it seems

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Speaker 1: that nobody wants to be behind this rally. What kind

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Speaker 1: of pop do you think we will eventually see when

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Speaker 1: it is confirmation that they are leaving those policies behind. Okay,

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Speaker 1: And I think there's a real issue with the international

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Speaker 1: investors and how they approached China I think a lot

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Speaker 1: of fund managers and investment professionals like China, especially the valuations.

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Speaker 1: They identify that China is a force to be reckoned

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Speaker 1: with from an economy point of view, but its market

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Speaker 1: just doesn't stack up that way on valuation metrics. However,

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Speaker 1: the asset owners are preventing those investors from actually participating

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Speaker 1: in the Chinese market, and this has led by some

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Speaker 1: of the kind of Western rhetoric around the way that

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Speaker 1: China runs its economy that sees parallels with Russia, China

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Speaker 1: being an emerging market digical proximity and ideological proximity. So

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Speaker 1: I think that the rally driven by international investors would

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Speaker 1: not be as big as it would be for other

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Speaker 1: geographies because of that limited amount of international investor interests.

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Speaker 1: Having said aled that, what we can see is we've

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Speaker 1: got a new administration being formed in China. We've yet

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Speaker 1: to meet the main actors in that administration. What we

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Speaker 1: do know is there could be some changes in the

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Speaker 1: government to the PBOC. It could lead to Montreal listening

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Speaker 1: and that could be good for markets, and we've been

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Speaker 1: talking about the reopening. And of course the other big

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Speaker 1: risk for markets is recessions to the recessionary fears globally,

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Speaker 1: you see a mechanical bottom in Asian stock sometime in

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Speaker 1: the weeks ahead, then when do we see a big

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Speaker 1: rally and when do you start to see some very

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Speaker 1: solid rallies coming through across Asian equities. Well, much of

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Speaker 1: this has linked to the US, and here at nomur

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Speaker 1: Are we're expecting a further three incremental rate hikes by

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Speaker 1: the FED between now and the middle of next year.

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Speaker 1: The markets always anticipate recovery, and with those three rate hikes,

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Speaker 1: we do assume there is a technical US recession. So

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Speaker 1: at some point at the beginning of next year, investors,

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Speaker 1: in our view, should be prepared for positioning themselves for

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Speaker 1: a rally and Asian equities. Jim, what are you What

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Speaker 1: are you seeing in Japan? You mentioned you're just back

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Speaker 1: from a visit there, and I'm curious as to how

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Speaker 1: the economy is holding up. We looked some ECO data

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Speaker 1: earlier salaries in the month of September. We're up about

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Speaker 1: two point one from last year's seems a pretty healthy clip. Yeah, well,

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Speaker 1: Japan's had a trouble with thirties five years of price declines,

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Speaker 1: unstable wages. It's had this incredibly loose montre policy, of

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Speaker 1: which is being criticized by the US in particular, and

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Speaker 1: that's been reflected in the exchange rate. But all of

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Speaker 1: a sudden, we're beginning to see inflation with pressures in Japan,

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Speaker 1: which is actually what the bo j has been trying

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Speaker 1: to stimulate over the course of the last few years.

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Speaker 1: So that's positive. But I think the major thing we're

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Speaker 1: seeing is that a lot of investors do want to

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Speaker 1: have some exposure to China without actually buying Chinese equities,

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Speaker 1: and for that reason they're looking to Japan. And for Japan,

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Speaker 1: China is Japan's single biggest trading partner, and many Japanese

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Speaker 1: companies have a big chunk of the revenue originated in

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Speaker 1: countries such as China. And a lot of our analysts

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Speaker 1: have been asked by investors, which Japanese company do we

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Speaker 1: buy which gives us exposures to China without some of

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Speaker 1: the governance risks or some of the asset owners inability

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Speaker 1: to allow investors of whole Chinese equities? Can you tell

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Speaker 1: us what some of those are? I would love to

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Speaker 1: tell you what some of those are, but sadly, our

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Speaker 1: compliance people won't allow me to well, I tried, let's

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Speaker 1: go in terms of some of your other views that

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Speaker 1: you've got, you you prefer e m Asia financials over

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Speaker 1: the developed markets. Here is that well, in terms of financials,

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Speaker 1: when we see interest rates moving up, there tends to

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Speaker 1: be an expansion and something called the net interest margin,

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Speaker 1: which tends to lead to upgrades in terms of earnings

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Speaker 1: for these banks. Now in Asia, in terms of the

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Speaker 1: banking industry, developed market exposure you can get through things

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Speaker 1: like HSBC, things like DBS and Singapore UM. But for

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Speaker 1: em you're starting to look at the Korean banks who

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Speaker 1: start looking at the time when these banks look at

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Speaker 1: the Indonesian banks or some of the banks in India,

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Speaker 1: And with the interest rates cycle moving um the way

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Speaker 1: it's moving right now, that expansion in interest rate margin

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Speaker 1: will see earliers up graze and that's one of the

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Speaker 1: reasons to white banks. So the move in interest rates,

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Speaker 1: where the FED has been concerned, is really one of

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Speaker 1: the big factors empowering the dollar higher. But over the

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Speaker 1: last five or six trading days, let's say since the

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Speaker 1: beginning of November, we've seen a lot of volatility in

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Speaker 1: the US currency. And I think since the first of

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Speaker 1: the year, if you look at the Bloomberg Dollar Spot

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Speaker 1: index were down a little more than one point three percent. Jim,

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Speaker 1: what's the path of the dollar from here? Okay? Our

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Speaker 1: view is that the dollar has had some great gains,

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Speaker 1: but it still has this world safe haven currency status.

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Speaker 1: It's still a market which is accompanied by a very

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Speaker 1: aggressive bed which is indicated to investors and commentators that

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Speaker 1: it will really identify inflation as a number one demon

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Speaker 1: that needs to be killed. And with three fairly assertive

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Speaker 1: rate highs, which we now in the middle of next year,

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Speaker 1: we see the dollar continues to stay strong, all right.

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Speaker 1: Jim McCafferty, head of Apack Equity Research at Namura, joining

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Speaker 1: us from Hong Kong and Namura economists coming through with

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Speaker 1: that note yesterday that they expect a slower pace of

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Speaker 1: Federal Reserve interest rate increases, but a longer cycle and

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Speaker 1: a higher peak rate. Namura economists seeing a peak FED

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Speaker 1: rate of five and a half to five point seven

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Speaker 1: five p