WEBVTT - Could Global Markets Be In an ‘Icarus Scenario’? 0:00:02.440 --> 0:00:07.159 You're listening to Asia Centric from Bloomberg Intelligence, the podcast 0:00:07.200 --> 0:00:10.320 that pulls back the curtain non global business so you 0:00:10.440 --> 0:00:14.840 can invest better across the Pacific realm. I'm Tom Corbett 0:00:14.880 --> 0:00:15.960 in Hong Kong. 0:00:16.079 --> 0:00:19.680 And I'm John Lee. The potent cocktail of soaring stocks, 0:00:19.880 --> 0:00:24.120 stamma inflation, and lofty interest rates is giving global asset 0:00:24.160 --> 0:00:25.880 managers an adrenaline rush. 0:00:26.280 --> 0:00:28.880 The Nike, the naz Dak and the S and P 0:00:29.080 --> 0:00:32.680 five hundred have defied gravity early this year, but for 0:00:32.920 --> 0:00:37.800 some that adrenaline rush is more like a white knuckle ride. 0:00:38.479 --> 0:00:41.800 Exuberance is abundant, but so are the risks. Are the 0:00:41.840 --> 0:00:45.600 world's equity markets soaring too far too quickly? And what 0:00:45.680 --> 0:00:48.800 about fixed income markets? And is the old sixty to 0:00:48.800 --> 0:00:51.199 forty asset allocation model still relevant? 0:00:51.960 --> 0:00:55.720 Let's bring in one of the leading luminaries of global investing, 0:00:55.960 --> 0:01:00.920 Jean charleber Tom is Global Chief Investment Officer of Multi 0:01:01.120 --> 0:01:05.560 Assets at HSBC Asset Management. He joins us from Paris, 0:01:05.760 --> 0:01:09.399 Jean Charles Bonjou. Welcome the Asia Centrack. 0:01:09.360 --> 0:01:13.040 HI term hydroen. Great to be here, JC. 0:01:13.480 --> 0:01:17.120 Global equity markets have started twenty twenty four with a 0:01:17.160 --> 0:01:20.720 bang Global Corporate credit spreads are also really tight. Are 0:01:20.720 --> 0:01:25.600 you surprised how sanguine financial markets are to be? 0:01:25.680 --> 0:01:28.479 Frank a bit, But I would make a big difference 0:01:28.640 --> 0:01:31.240 between our perspective of the short term and let's say 0:01:31.280 --> 0:01:33.600 the next three to six months compared to six to 0:01:33.680 --> 0:01:36.520 twelve months. On a short term basis, Tactically speaking, we 0:01:36.560 --> 0:01:40.040 can understand actually the good performance of risky assets with 0:01:40.319 --> 0:01:43.840 largely driven by the fact that it's not only now 0:01:44.800 --> 0:01:47.280 kind of soft landing scenario which is to be priced 0:01:47.400 --> 0:01:49.760 in the market, but even more, you know, a kind 0:01:49.760 --> 0:01:53.160 of golden pass scenario when we have inflation which is, 0:01:53.240 --> 0:01:57.880 let's stabilizing and at the same time very strong positive surprises. 0:01:58.320 --> 0:02:03.000 So from this perspective, the good performance of risk key 0:02:03.040 --> 0:02:06.920 assets is something that we can understand. From our perspective, 0:02:07.240 --> 0:02:09.560 this could continue a couple of weeks, even a couple 0:02:09.560 --> 0:02:12.440 of months, because we do not see any strong risk 0:02:13.080 --> 0:02:19.320 of growth going down or even inflation continuing to stabilize. However, however, 0:02:19.639 --> 0:02:22.800 the picture could be significantly different if we have no 0:02:23.000 --> 0:02:26.120 longer investment horizon six to twelve months, and for this 0:02:26.280 --> 0:02:31.040 investment horizon we would recommend more defensive growth positioning in portfolios. 0:02:32.240 --> 0:02:35.560 Okay, Jason, you sort of alluded to the FED policy rate. 0:02:35.760 --> 0:02:38.720 Are you in the camp of higher for longer or 0:02:39.200 --> 0:02:40.240 more of a FED pivot? 0:02:41.880 --> 0:02:44.840 We are in the camp of a fat pivot, which 0:02:44.919 --> 0:02:48.040 is pro rare with the larger price as of today 0:02:48.080 --> 0:02:51.240 by the market. But O pur perspective is slightly different. 0:02:51.680 --> 0:02:53.800 Let's be more precise what do I mean by that? 0:02:53.919 --> 0:02:56.480 So we are expecting a fat pivot around media or 0:02:56.639 --> 0:02:59.919 likely in June, which is approprior Right now, the concerns 0:03:00.080 --> 0:03:04.280 us as the constusitus expecting three rate cuts after and 0:03:04.360 --> 0:03:08.600 after some type of normalization on our side, and this 0:03:08.800 --> 0:03:12.000 is driven by our in or would be a more 0:03:12.040 --> 0:03:15.359 negative perspective for the economic groups of the second half 0:03:15.440 --> 0:03:17.960 of the year. We believe that we could have selectly 0:03:18.000 --> 0:03:20.520 more than three rate cuts four to five in the 0:03:20.520 --> 0:03:24.040 second half of this year. So yes, believe in fat 0:03:24.080 --> 0:03:28.120 periods and which would be stronger higher than what is 0:03:28.160 --> 0:03:29.240 it currently expected. 0:03:30.160 --> 0:03:33.800 And closely related to that, the economists recently ran a 0:03:33.840 --> 0:03:35.720 piece saying that if you want to get a sense 0:03:35.720 --> 0:03:39.040 of the US economy's vigor, don't look at the S 0:03:39.120 --> 0:03:42.520 and P. Five hundred, Rather look at what they say 0:03:42.600 --> 0:03:46.440 the S and P. Four ninety three. Obviously a reference 0:03:46.480 --> 0:03:50.840 to the Magnificent seven and their gravity defined performance is 0:03:50.880 --> 0:03:55.280 that bifurcated US index with so much market capitalization in 0:03:55.360 --> 0:03:57.800 so few companies. How do you see that? Is that 0:03:57.840 --> 0:03:59.320 an opportunity or risk? 0:04:01.120 --> 0:04:02.960 That's true that if we look at the simply five 0:04:03.040 --> 0:04:06.480 hundred now the magnificent sevenths are probably making the whole story. 0:04:06.720 --> 0:04:10.160 Having said that, if we look at US equities performance 0:04:10.400 --> 0:04:12.600 since the end of October so or less of the 0:04:12.680 --> 0:04:15.840 last four months, there has been a widening brets in 0:04:15.920 --> 0:04:18.880 the market. If you compare the performance of the Magnificent 0:04:18.960 --> 0:04:22.080 seven and the four hundred and ninety three or the 0:04:22.200 --> 0:04:25.640 stocks over the last four months, the gap in different 0:04:25.760 --> 0:04:29.400 terms of performance is much smaller than before. So yes, 0:04:29.440 --> 0:04:32.560 of course Magnificent seven always dominate the market, but at 0:04:32.560 --> 0:04:35.039 the same time to a much less extant than what 0:04:35.160 --> 0:04:38.279 we had seen before. First point to mention. Second point, 0:04:38.320 --> 0:04:41.240 let's come back now to the Magnificent seven. On one 0:04:41.320 --> 0:04:44.120 side of your sleeve. You look at market concentrations. This 0:04:44.200 --> 0:04:47.280 is very exceptional, even on a historical basis, even if 0:04:47.279 --> 0:04:51.200 it's not completely unusual, I would say, and probably a 0:04:51.240 --> 0:04:54.640 good comparison to make is with the Fourth Horsemen at 0:04:54.640 --> 0:04:59.480 the end of the nineties in terms of extreme concentration. However, 0:04:59.600 --> 0:05:02.400 the same time, and coming back to the Fourth Horsemen 0:05:02.440 --> 0:05:05.320 in the nineties, we are more positive on the Magnificent 0:05:05.400 --> 0:05:08.479 Seven for three reasons. The first reason is that in 0:05:08.520 --> 0:05:13.480 terms of valuation compared to Fourth Horsemen, valuations are not cheap, obviously, 0:05:13.680 --> 0:05:15.920 but at the same time they are very far from 0:05:15.960 --> 0:05:19.159 being extreme like in the dot com crisis. So it 0:05:19.240 --> 0:05:21.560 makes a big difference if you look at the Magnificent 0:05:21.640 --> 0:05:25.279 seventh right now for what is around thirty So of course, 0:05:25.560 --> 0:05:28.760 once again this is not cheap, but at the same time, 0:05:28.839 --> 0:05:34.360 in these launely justify by earnings, current earnings and forecasts earnings. 0:05:34.680 --> 0:05:37.039 And at the same time the stocks also they have 0:05:37.080 --> 0:05:40.760 a kind of quality bias obviously, and in a context 0:05:40.839 --> 0:05:44.679 where we also expect fed red cats, as I explained before, 0:05:45.120 --> 0:05:48.760 they should continue to be supportive. So of course, at 0:05:48.800 --> 0:05:51.240 the end of the day it will not continue forever, 0:05:51.640 --> 0:05:54.040 but for the next few months, who are not too 0:05:54.080 --> 0:05:56.560 much worried about the Magnificent seven, And we continue to 0:05:56.600 --> 0:05:59.320 believe that this still makes sense in equity portfolios, and 0:05:59.560 --> 0:06:02.000 in verty said portfolio generally speaking. 0:06:02.560 --> 0:06:06.240 I hear you say the US markets are probably not 0:06:06.520 --> 0:06:07.120 in a bubble. 0:06:08.520 --> 0:06:12.039 If you look at the Magnificent seven, the answer is no. 0:06:12.560 --> 0:06:15.000 Once again, it does not mean that they are cheap, 0:06:15.040 --> 0:06:16.719 which is not the case. It does not mean that 0:06:16.760 --> 0:06:19.280 there will be no correction, but it's not a bubber 0:06:19.480 --> 0:06:21.720 like during the dot Com for sure. And if you 0:06:21.760 --> 0:06:24.960 look now at the other stocks, the four ninety three, 0:06:25.080 --> 0:06:27.359 they are very far from being a bubble. If you 0:06:27.360 --> 0:06:30.800 look at valiation, they are close to actually average levels. 0:06:30.920 --> 0:06:33.240 So we're not too much read about that. Once again, 0:06:33.560 --> 0:06:35.920 not a bubble does not mean that they should not 0:06:36.000 --> 0:06:38.480 be a market correction, and she is probably more aura 0:06:38.800 --> 0:06:41.039 scenario for the second half of the year, which is 0:06:41.040 --> 0:06:42.359 a bit different from a bubble. 0:06:44.120 --> 0:06:48.320 So given your cautious stance, how should investors be positioned 0:06:48.440 --> 0:06:50.640 between equities and fixed income? 0:06:51.279 --> 0:06:53.799 So what you are recommending right now is, once again, 0:06:54.120 --> 0:06:56.800 wherever you want to make a distinction between if your 0:06:56.800 --> 0:06:59.800 investment horizon is let's say around three months or more 0:06:59.839 --> 0:07:02.839 tical intactical basis and a bit longer six to twelve 0:07:02.920 --> 0:07:07.799 months three months investment horizon. As regards equities, we are neutral. 0:07:08.000 --> 0:07:10.680 As I explained before, there are still some positive factors 0:07:10.720 --> 0:07:14.239 if now your investment horizon is a bit longer six 0:07:14.320 --> 0:07:17.280 to twelve months, we would recommend to be quite cautious 0:07:17.320 --> 0:07:20.560 in your assetlocation. So what does it mean either reduce 0:07:20.760 --> 0:07:24.800 your equity allocation compared to sixty to forty portfolio directly 0:07:25.280 --> 0:07:28.400 or what we believe it is also quite interesting as 0:07:28.440 --> 0:07:31.680 of today is to use some hedges. Which type of 0:07:31.720 --> 0:07:34.880 hedges and we're talking about option option heedges. If you 0:07:34.920 --> 0:07:38.040 look at implied volatility, and for us, it's a bit 0:07:38.080 --> 0:07:40.880 of puzzle to see that it's quite low actually and 0:07:41.000 --> 0:07:45.160 still low and even for six to twelve months horizon. 0:07:45.280 --> 0:07:48.160 So for as it makes sense to add positions in 0:07:48.240 --> 0:07:51.000 options to hatch your put for you, we are more 0:07:51.040 --> 0:07:54.440 negative on credit even at a short term investment horizon 0:07:54.480 --> 0:07:58.960 and a more medium term investment horizon, spreads are very tight. 0:07:59.360 --> 0:08:03.080 At the same time, i'm significant refinancing needs for this year. 0:08:03.280 --> 0:08:06.040 It has already started until now, no strong impact on 0:08:06.080 --> 0:08:08.360 the market, but we believe that the strong insurance will 0:08:08.360 --> 0:08:10.360 have a negative impact. And also at the same time, 0:08:10.440 --> 0:08:14.080 we all know that credit and corporate bonds they are 0:08:14.120 --> 0:08:18.360 not very good assets in late cycle. They have negative convexity, 0:08:18.400 --> 0:08:21.320 which means that when there is a downgrade or fall 0:08:21.440 --> 0:08:25.440 in growth, they perform very very poor, so more reservation 0:08:25.600 --> 0:08:29.440 on credit and strong preference for IIG compared to highyield 0:08:29.600 --> 0:08:34.000 So bones definitely value in bonds, not in all bond market, 0:08:34.080 --> 0:08:37.600 but in government bonds definitely. We're still waiting over the 0:08:37.640 --> 0:08:40.439 short term for better entree points in terms of duration, 0:08:40.800 --> 0:08:44.560 so probably a closer to four point three for US treasuries, 0:08:44.960 --> 0:08:47.680 but right now there is still some value if you 0:08:48.080 --> 0:08:51.960 have once again more medium term investment horizon, large but 0:08:52.080 --> 0:08:54.199 not least, And coming back to your point about the 0:08:54.240 --> 0:08:58.360 sixty forty sou portfolio, we believe that commodities also make 0:08:58.480 --> 0:09:02.720 sense in portfolios. Secretly gold so very good of course 0:09:02.960 --> 0:09:06.000 padging properties, particularly geopolitical risk, which could be a bit 0:09:06.000 --> 0:09:09.000 important this year, and gold also could benefit from the 0:09:09.040 --> 0:09:12.160 fact that we're expecting red decreases. So if real rates, 0:09:12.160 --> 0:09:15.479 which are quite relatively high at least from a historical perspective, 0:09:15.559 --> 0:09:18.000 good talent, they should also benefit to gold and other 0:09:18.080 --> 0:09:21.559 commodities like oil. It could be so good, hatch if 0:09:21.600 --> 0:09:24.640 there is a particularly more gew pritical risk. And we 0:09:24.720 --> 0:09:27.200 believe al so that in terms of supply and demand, 0:09:27.280 --> 0:09:30.920 the market is still a bit imbalanced towards actually possibility 0:09:30.960 --> 0:09:33.360 or to see some reduced supply in the market. So 0:09:33.440 --> 0:09:37.160 commodities are a good diversifying assets from our perspective. 0:09:38.200 --> 0:09:42.360 JC, Let's shift the Chinea a bit. In Multi China, 0:09:42.400 --> 0:09:46.199 we've had some state induced buying. The so called national 0:09:46.240 --> 0:09:50.839 team has been scooping up stocks fairly generously. It's brought 0:09:50.880 --> 0:09:55.280 some stability back to the CSI three hundred for a while. 0:09:55.320 --> 0:09:58.120 They seem to be in free fall, but foreign investors 0:09:58.120 --> 0:10:01.160 are still keeping their distance happily. Parts on what it 0:10:01.240 --> 0:10:05.760 might take to restore foreign investors' components in China. 0:10:06.240 --> 0:10:08.760 Definitely, China is not a difficult question and there is 0:10:08.800 --> 0:10:10.840 no easy answer if we come back to China. We 0:10:10.880 --> 0:10:13.000 have always thought that it would be a kind of 0:10:13.000 --> 0:10:16.480 a bumpy road for China, definitely, for growth to recover, 0:10:16.559 --> 0:10:19.319 to improve, and for the equity market. Market timing is 0:10:19.360 --> 0:10:21.600 of course a bit difficult, and on our side, what 0:10:21.640 --> 0:10:24.080 we are more recommending as of today is to see 0:10:24.080 --> 0:10:27.559 some opportunities, because we all know and Japan is probably 0:10:27.600 --> 0:10:30.120 the perfect example. Even in a market which can be 0:10:30.200 --> 0:10:33.120 in a very parish environment, there are still some pockets 0:10:33.160 --> 0:10:35.920 of opportunities. So this is more what we are doing 0:10:36.000 --> 0:10:39.160 right now to try to identify sectors which are still 0:10:39.200 --> 0:10:42.520 a bit attractive. Coming back to your question now about 0:10:42.520 --> 0:10:46.040 what could restore investor confidence, but definitely they are all 0:10:46.080 --> 0:10:50.600 waiting for some big political changes as regards monetary polisis 0:10:50.600 --> 0:10:53.920 and particularly fiscal policy. So this is the key driver. 0:10:54.200 --> 0:10:59.439 The recent announcements, particular two sessions went into the right direction, 0:10:59.679 --> 0:11:04.839 but reinvestors, I'm still expecting even bigger announcement. This is 0:11:04.880 --> 0:11:07.200 the reason why we believe that the market could see 0:11:07.240 --> 0:11:10.319 some political driven rallies in the next few months. This 0:11:10.400 --> 0:11:12.719 is what we have already seen. This probably is going 0:11:12.760 --> 0:11:15.200 to continue also, but at the same time, as I said, 0:11:15.200 --> 0:11:18.280 there are still some headwinds and without no strong commitment 0:11:18.600 --> 0:11:22.079 or even stronger commitments from financial authorities, it will still 0:11:22.120 --> 0:11:23.720 a bit difficult to fully recover. 0:11:25.000 --> 0:11:27.720 So Jace, just listening to what you mentioned on China, 0:11:27.800 --> 0:11:30.360 are you cautious overall on emerging markets? 0:11:30.800 --> 0:11:33.960 Yeah, definitely as an asset class, and right now we 0:11:34.240 --> 0:11:37.600 under way to emerging markets in our portfolios. Of course, 0:11:37.679 --> 0:11:41.120 negative momentum. At the same time, global factors are not 0:11:41.240 --> 0:11:45.200 very favorable with a strong DORA, with frattish commodities, even 0:11:45.240 --> 0:11:47.439 if I'm a bit more positive over the media the 0:11:47.480 --> 0:11:49.480 short term, as I said, so as a consequence went 0:11:49.559 --> 0:11:53.040 the way. Having said that what we are favoring right 0:11:53.080 --> 0:11:55.400 now in emerging market, we believe that there are some 0:11:55.520 --> 0:11:58.920 areas of optimism in emerging markets. We are quite active 0:11:58.920 --> 0:12:01.800 in emerging market, but more more on a lative value basis, 0:12:02.240 --> 0:12:04.280 as on asset class won the weight. But now we 0:12:04.360 --> 0:12:07.400 see in emerging markets we take relatively strong positions and 0:12:07.480 --> 0:12:10.640 we see actually some opportunities in Asia India, so that's 0:12:10.640 --> 0:12:13.439 probably has become quite popular. But on our side, that 0:12:13.520 --> 0:12:16.200 has been one of our favorite peaks for a few 0:12:16.240 --> 0:12:19.439 months now, very profitable. So we believe that the social 0:12:19.559 --> 0:12:22.480 story we buy would say the social story for India, 0:12:22.520 --> 0:12:25.360 but also the tactical story, so we continue even if 0:12:25.360 --> 0:12:28.080 it has performed very well, to have overweight or long 0:12:28.120 --> 0:12:31.240 positions in India. There are other markets, maybe a bit 0:12:31.240 --> 0:12:35.600 more niche markets like Indonesia Indonesian equities, so also believe 0:12:35.600 --> 0:12:38.400 that there is some value here, particularly after the elections, 0:12:38.440 --> 0:12:42.959 so which has showed some continuity. The profitability of Indonesian 0:12:43.000 --> 0:12:45.360 companies is very good at this on a errative basis, 0:12:45.400 --> 0:12:48.800 and it should also continue to benefit from the IV ecosystem, 0:12:48.920 --> 0:12:52.360 so positive views on Indonesia and after in Latin America, 0:12:52.559 --> 0:12:57.160 So Mexico, Mexican equities and the Mexican peso are also 0:12:57.440 --> 0:13:00.600 emerging assets that we are considered as attractive. So being 0:13:00.760 --> 0:13:03.920 not very positive on the atclass as itself underweight, but 0:13:04.280 --> 0:13:07.120 being quite active on a raative value basis and seeing 0:13:07.559 --> 0:13:08.440 some opportunities. 0:13:08.480 --> 0:13:12.800 Yes, jac it's interesting you mentioned India because it wasn't 0:13:12.840 --> 0:13:16.720 long ago when Mark Mobius, the veteran emerging markets investor, 0:13:17.080 --> 0:13:21.960 was on this very podcast singing India's praises. Do you 0:13:22.000 --> 0:13:25.240 see India's politics though, as being a risk factor to 0:13:25.320 --> 0:13:26.160 its growth story? 0:13:27.200 --> 0:13:30.880 Definitely. Having said that, we will see, of course the 0:13:30.920 --> 0:13:33.520 resources of the election, but we are not expecting big 0:13:33.640 --> 0:13:37.280 changes in terms of monetary policy. It seems to us 0:13:37.280 --> 0:13:40.560 that compared to a couple of years ago, the policy, 0:13:40.559 --> 0:13:43.640 in particularly the monetary policy by the central Bank is 0:13:43.679 --> 0:13:46.400 i would say, very orthodox right now, and they are 0:13:46.600 --> 0:13:50.320 quite concious as regards in particularly reducing rates if inflation 0:13:50.679 --> 0:13:54.199 is not close to their targets. So definitely, yes, there 0:13:54.280 --> 0:13:59.200 still remains uncertainties about politics. That maybe also the reason 0:13:59.320 --> 0:14:03.200 why even if India if you look at earnings growth, 0:14:03.240 --> 0:14:06.560 it's extremely strong. At at the same time, there is 0:14:06.600 --> 0:14:09.520 still let's say a risk premium which is quite significant 0:14:09.559 --> 0:14:11.720 in Indian equities, so that maybe is the reason. But 0:14:11.760 --> 0:14:13.679 we're not too much worried about that and would say 0:14:13.880 --> 0:14:17.240 much better than in the past. So for us, it's 0:14:17.280 --> 0:14:20.040 not at all a brooking point. And as I said, 0:14:20.080 --> 0:14:23.480 we favor all the positive factors in others. Continue to 0:14:23.560 --> 0:14:27.359 keep an overweight and a long position in Indian equities. 0:14:28.360 --> 0:14:31.200 Jac there are a lot of potential risks out there. 0:14:31.280 --> 0:14:33.960 We still have two wars going on right now. Some 0:14:34.000 --> 0:14:36.880 people talk about a potential US recession or that seems 0:14:36.920 --> 0:14:39.560 to have diffused somewhat. There's also a lot of risks 0:14:39.600 --> 0:14:42.840 around commercial real estate what keeps you late at night. 0:14:44.400 --> 0:14:46.080 There are always a lot of risk, and I would 0:14:46.080 --> 0:14:49.960 say that if you're particularly multi asset putform manager, because 0:14:49.960 --> 0:14:52.720 you cover so many asset classes, your main objective is 0:14:52.720 --> 0:14:54.440 the riad to look at the risk and fully agree 0:14:54.480 --> 0:14:56.800 with you. So there are the obvious ones, I would say, 0:14:56.880 --> 0:15:00.280 so obvious usual political risk. As I said before, to 0:15:00.400 --> 0:15:03.400 us that a good way to hatch against this geopolitical 0:15:03.560 --> 0:15:07.600 risk is to take to commodities, gold in particular, the 0:15:07.680 --> 0:15:11.120 dollar is also a good safe heaven asset in order 0:15:11.120 --> 0:15:14.240 to hatch against the geopolitical risk. So there are always 0:15:14.360 --> 0:15:17.560 actually at least to try to partially protect your put 0:15:17.640 --> 0:15:21.040 for your investment against this geopolitical risk. There are other 0:15:21.160 --> 0:15:24.960 risks which are a bit less obvious, maybe less straightforward. 0:15:25.000 --> 0:15:27.320 Let's say so of course about the economy itself. So 0:15:27.400 --> 0:15:30.880 everyone is talking about soft landing golden pass, but there 0:15:30.960 --> 0:15:33.800 is a risk of hard landing, either because inflation is 0:15:33.880 --> 0:15:37.280 stickier than expected or because we are saying, let's say, 0:15:37.320 --> 0:15:39.720 not to slow down in growth, but a recession. These 0:15:39.760 --> 0:15:43.560 are possible risks on our side. As I already explained before, 0:15:43.680 --> 0:15:48.120 we are hedging ourselves against this hard landing because due 0:15:48.200 --> 0:15:53.320 of stickier inflation or lower growth through cautious exposure to 0:15:53.440 --> 0:15:55.480 risk assets, particularly if you have a six to twelve 0:15:55.520 --> 0:15:59.640 months horizon, particularly given the fact that right now the 0:16:00.040 --> 0:16:04.640 market is almost perfectly priced for a soft planning scenario 0:16:04.800 --> 0:16:07.440 or a Gonden past scenario. So what does it mean. 0:16:08.080 --> 0:16:10.840 It means that you do not necessarily need a match 0:16:11.160 --> 0:16:14.800 to see some market force. Once again, not too much 0:16:15.000 --> 0:16:18.160 radio over the next three to six months. We believe 0:16:18.240 --> 0:16:21.440 that there are much more headwinds at six to twelve 0:16:21.480 --> 0:16:24.000 months in Western horizon, so here, yes, we would like 0:16:24.080 --> 0:16:26.920 to hatch even more our portfolios definitely. 0:16:28.400 --> 0:16:31.200 Jasey, you just mentioned that you cover so many financial 0:16:31.280 --> 0:16:34.880 markets across all the geographies. How as a multi asset 0:16:34.920 --> 0:16:38.359 manager do you decide what's the asset allocation process? 0:16:39.360 --> 0:16:43.240 Very good question. The only possibility for me, because by 0:16:43.440 --> 0:16:47.320 essence you can cover hundreds and hundreds of asset classes 0:16:47.400 --> 0:16:50.440 or markets, is to have a very very discipline approach 0:16:50.480 --> 0:16:53.920 and in particularly to rely on the use of quantitative 0:16:54.000 --> 0:16:57.240 techniques to at least to do some screening. This is 0:16:57.280 --> 0:16:59.680 the only way to be able to detect opportunities and 0:16:59.720 --> 0:17:03.240 to be portfolios in a consistent way. To make it short, 0:17:03.240 --> 0:17:04.879 what we're doing on our sites, so we use a 0:17:04.920 --> 0:17:09.160 combination of quantitative tools and more qualitative insights. And how 0:17:09.200 --> 0:17:12.879 does it work. It's probably in two steps as regards views, 0:17:12.920 --> 0:17:15.840 So we've got strategic views that we discuss on a 0:17:15.920 --> 0:17:20.639 quarterly basis across all chesb SS capabilities, so equity is 0:17:20.720 --> 0:17:24.920 fixed income, multi asset and these strategic views are largely 0:17:24.960 --> 0:17:28.880 based on macroeconomic insights analysis and at the same time 0:17:29.200 --> 0:17:32.280 capital market assumption which is the new name for long 0:17:32.359 --> 0:17:36.600 term expected returns which can derive from proprietary models. We 0:17:36.680 --> 0:17:40.600 have also some tactical views short term investment horizon, which 0:17:40.640 --> 0:17:46.440 rely a lot on quantitative signals, so momentum signals, risk signals, 0:17:46.680 --> 0:17:50.240 carry signals in order to take into account other factors. 0:17:50.280 --> 0:17:53.560 Because what is very key also is to realize that 0:17:53.600 --> 0:17:57.240 markets are not only driven by one dimension one seam 0:17:57.359 --> 0:17:59.480 at given time, so it's very important to take into 0:17:59.480 --> 0:18:03.720 a different perspectives. Last, but not least, when we have views, 0:18:03.840 --> 0:18:06.440 you need to build portfolios, So how can you build 0:18:06.440 --> 0:18:10.480 portfolios in a consistent way? Here we use some quantitative 0:18:10.600 --> 0:18:15.600 tools of proprietory risk optimization techniques or risk budgeting techniques. 0:18:16.080 --> 0:18:18.119 In a nutshare we try to get the best of 0:18:18.200 --> 0:18:23.080 both words quantitative insights rigor but also qualitative insights. And 0:18:23.080 --> 0:18:26.399 particularly when we discuss our strategic views. 0:18:26.560 --> 0:18:29.280 JC, there's been a lot of criticisms of the traditional 0:18:29.320 --> 0:18:33.440 sixty forty asset allocation model. Equities and bond prices seem 0:18:33.560 --> 0:18:36.440 to be correlated, especially towards the end of last year, 0:18:36.600 --> 0:18:41.480 with hearing all these hype of alternative assets. What's your 0:18:41.600 --> 0:18:43.680 view is the sixty to forty model dead. 0:18:44.920 --> 0:18:47.680 This is very important and a key question for multi 0:18:47.680 --> 0:18:50.560 asset port through managers. I would say that, unfortunately, the 0:18:50.640 --> 0:18:53.280 natural tendencies to go from one extreme to the other one. 0:18:53.480 --> 0:18:56.719 So yeah, the sixty forty was the best model, and 0:18:56.800 --> 0:18:59.400 now it's completely crapped and we should do something else. 0:18:59.760 --> 0:19:02.080 I have a more nuanced view, So what do I 0:19:02.160 --> 0:19:05.080 mean by that? I would say that first, sixty forty 0:19:05.400 --> 0:19:09.440 has never been an ideal for us. Once again, from 0:19:09.480 --> 0:19:13.600 our perspective, complementing a sixty to forty portfolio by taking 0:19:13.640 --> 0:19:19.000 exposure to commodities on a structural basis or to liquid alternative. Also, 0:19:19.040 --> 0:19:22.280 if something which is making sense from a structural perspective, 0:19:22.320 --> 0:19:26.760 particularly commodities, they have low correlation to traditional set classes, 0:19:26.800 --> 0:19:30.399 so they on good edges in portfolios. So that's for 0:19:30.600 --> 0:19:33.280 the first common Strategically speaking, we believe that sixty to 0:19:33.320 --> 0:19:36.919 forty probably on a strategic basis, it's even better to 0:19:37.000 --> 0:19:41.119 have let's say fifty forty and ten with STEN allocated 0:19:41.160 --> 0:19:44.880 to altern liquid alts and particular commodities. Now, I will 0:19:44.920 --> 0:19:48.199 not be so pessimistic about the sixty to forty in 0:19:48.280 --> 0:19:51.760 the short to medium term and y because the negative 0:19:51.800 --> 0:19:55.159 comments about sixty forty portfolio were largely related to what 0:19:55.240 --> 0:19:57.800 happened in not necessarily in last year, but probably more 0:19:57.920 --> 0:20:01.000 the year before in twenty twenty two, when we saw 0:20:01.119 --> 0:20:04.600 both asset classes bonds and equities falling at the same time, 0:20:04.600 --> 0:20:07.040 they were having very strongly negative returns, so very strongly 0:20:07.080 --> 0:20:10.760 positive coalation between both, and this is usually the case, 0:20:10.920 --> 0:20:13.960 of course when you have some spikes and inflation. Now 0:20:14.240 --> 0:20:16.600 our view and this is what we have also seen. 0:20:16.760 --> 0:20:20.000 If you look at bond and stock correlation more recently, 0:20:20.480 --> 0:20:23.080 we can still remain positive, but it is more coming 0:20:23.119 --> 0:20:26.960 back actually to zero, so low coalation or even no 0:20:27.040 --> 0:20:30.359 coalation between bond and equities, which from our perspective is 0:20:30.400 --> 0:20:34.360 what we should expect now if we are reassured, which 0:20:34.440 --> 0:20:37.280 is our case, about the fact that inflation rates or 0:20:37.320 --> 0:20:40.760 you know, coming closer and closer to central advanced targets. 0:20:41.200 --> 0:20:45.000 To summarize in a share over the short to medium term, 0:20:45.080 --> 0:20:47.760 we believe that the coalation between bonds and equities is 0:20:47.800 --> 0:20:50.400 going to be less positive that we have seen before. 0:20:50.600 --> 0:20:53.960 In this case, it's positive for sixty forty portfolio, but 0:20:54.040 --> 0:20:56.280 at the same time we also believe that we can 0:20:56.359 --> 0:20:59.520 do better than structure is and a classic sixty forty 0:20:59.520 --> 0:21:04.280 by taking exposure to alternatives, particular commodities, liquid alts. If 0:21:04.280 --> 0:21:07.680 you're considering alternatives like private assets. So here it's a 0:21:07.720 --> 0:21:10.760 bit different because you have the liquidity question which has 0:21:10.760 --> 0:21:14.800 to be taken into consideration, particularly for retail investors, but 0:21:14.960 --> 0:21:18.520 definitely liquid the alternative, yes, and particular communities, they make sense. 0:21:18.960 --> 0:21:21.680 They have their room in a classic allocation for sure. 0:21:21.760 --> 0:21:25.920 Yes, jac wanted to ask you about how to think 0:21:25.960 --> 0:21:30.800 about event risk in the context of the elections this 0:21:30.960 --> 0:21:34.600 year for many of the world's leading democracies. The United 0:21:34.640 --> 0:21:38.280 States gets its turn in November with a rematch between 0:21:38.320 --> 0:21:42.480 Donald Trump and Joe Biden. How should investors think about 0:21:43.200 --> 0:21:46.920 the outcome of that election in November in terms of 0:21:47.520 --> 0:21:52.280 the global business outlook and any other risks associated with that. 0:21:53.200 --> 0:21:55.720 I would say that in both cases, whatever the outcome 0:21:55.720 --> 0:21:57.679 of the election, which is not easy to focus, to 0:21:57.720 --> 0:22:00.919 say it softly, we believe that as regards pecular global 0:22:00.960 --> 0:22:05.040 trade policy or they should necessarily no big changes, meaning 0:22:05.040 --> 0:22:07.480 that in both cases, for the US, there is still 0:22:07.520 --> 0:22:12.119 a tendency to favor resharing or unsharings not necessary, but 0:22:12.160 --> 0:22:16.080 big consequences because it's very of course difficult to focus selection. 0:22:16.280 --> 0:22:19.280 Once again, our recommendation would be on our side to 0:22:19.359 --> 0:22:23.199 consider that there are good safe heaven assets to protect 0:22:23.200 --> 0:22:27.439 ourselves against volatility. That's probably the door. So we believe 0:22:27.480 --> 0:22:30.200 that having some exposure to the Dora is a good 0:22:30.280 --> 0:22:33.119 hatch against this type of geopolitical risk. And at the 0:22:33.160 --> 0:22:36.760 same time also options still a bit puzzled to see 0:22:36.800 --> 0:22:39.600 that if you look at the implied volatility for S 0:22:39.640 --> 0:22:43.480 and P options even put options out of the money, 0:22:43.480 --> 0:22:46.000 if you look at their prices around the action in 0:22:46.000 --> 0:22:48.760