1 00:00:00,080 --> 00:00:02,000 Speaker 1: Let's get to our guest. Jim McCafferty is join ahead 2 00:00:02,000 --> 00:00:05,080 Speaker 1: of APEX Equity Research at Nomura, joining us from Hong Kong. 3 00:00:05,320 --> 00:00:07,360 Speaker 1: Obviously want to get your outlook for Asian stocks, but 4 00:00:07,440 --> 00:00:09,960 Speaker 1: on the broad macro picture, as we're awaiting from Jackson 5 00:00:10,039 --> 00:00:12,520 Speaker 1: for Jackson Holland and what we're going to hear from 6 00:00:13,039 --> 00:00:16,799 Speaker 1: j Pal, the key point here is to whether or 7 00:00:16,840 --> 00:00:19,520 Speaker 1: not we have seen peak inflation and just how hawk 8 00:00:19,640 --> 00:00:23,800 Speaker 1: is Jpal is going to be? What are you expecting? Okay, well, 9 00:00:23,840 --> 00:00:26,520 Speaker 1: I think it's not so much the US inflation picture. 10 00:00:26,680 --> 00:00:29,159 Speaker 1: That's the point of discussion. That's what's going on in 11 00:00:29,200 --> 00:00:31,240 Speaker 1: the rest of the world. Be mindful that this meeting 12 00:00:31,240 --> 00:00:35,599 Speaker 1: will be populated from central bankers from other geographies and 13 00:00:35,680 --> 00:00:39,120 Speaker 1: we saw this week but inflation in the UK, inflation 14 00:00:39,159 --> 00:00:42,800 Speaker 1: in Europe is approaching or has got through double digits. 15 00:00:42,840 --> 00:00:45,320 Speaker 1: So this, I think is going to be quite impactful 16 00:00:45,479 --> 00:00:48,160 Speaker 1: for how decisions are made and what sort of time 17 00:00:48,200 --> 00:00:51,559 Speaker 1: frame we're going to get for indust rate hikes, and 18 00:00:51,600 --> 00:00:53,400 Speaker 1: in terms of that time frame and mint all that 19 00:00:53,440 --> 00:00:55,640 Speaker 1: ways through into the dollar and the impact two on 20 00:00:55,760 --> 00:00:59,000 Speaker 1: Asian equities. Do we continue to see that dollar strength 21 00:00:59,120 --> 00:01:02,920 Speaker 1: and how does that kind of change your view here? Well, 22 00:01:02,960 --> 00:01:05,360 Speaker 1: I think that the major currency we watched quite carefully 23 00:01:05,480 --> 00:01:09,160 Speaker 1: at Nomura is the Japanese yen, and so far this 24 00:01:09,240 --> 00:01:11,360 Speaker 1: year the yen has been weak and visa via dollar, 25 00:01:11,440 --> 00:01:13,360 Speaker 1: and much of that can be explained by the fact 26 00:01:13,400 --> 00:01:17,200 Speaker 1: that the Bank of Japan's governor, Kuroda San, has made 27 00:01:17,240 --> 00:01:19,560 Speaker 1: it clear that he wants inflation to get through that 28 00:01:19,600 --> 00:01:23,720 Speaker 1: two percent target threshold, and that's beginning to be achieved. 29 00:01:23,840 --> 00:01:27,400 Speaker 1: Despite that achievement, there is no indication from the b 30 00:01:27,520 --> 00:01:30,480 Speaker 1: o J that there is an intention to increase rates. Now. 31 00:01:30,520 --> 00:01:32,920 Speaker 1: One thing that may be an outlier, which may happen 32 00:01:32,920 --> 00:01:35,399 Speaker 1: at the beginning of next year, is that Kuroda san 33 00:01:35,520 --> 00:01:39,080 Speaker 1: will resign as the central bank governor in Japan. He 34 00:01:39,160 --> 00:01:42,039 Speaker 1: will then have a successor appointed, and I think the 35 00:01:42,080 --> 00:01:46,520 Speaker 1: market will be thinking, does that successor abandon this zero 36 00:01:46,600 --> 00:01:50,120 Speaker 1: interest rate policy and start thinking about normalizing in line 37 00:01:50,120 --> 00:01:52,640 Speaker 1: with what's happening in Western economies, and that could result 38 00:01:52,720 --> 00:01:57,080 Speaker 1: in some some end strength. We think. The other key 39 00:01:57,160 --> 00:01:59,680 Speaker 1: point is China's economy, and we've been seeing more measures 40 00:01:59,720 --> 00:02:02,360 Speaker 1: here to try and stabilize that it didn't kind of 41 00:02:02,440 --> 00:02:04,840 Speaker 1: be it wasn't really reflected, I should say in market action, 42 00:02:04,840 --> 00:02:07,480 Speaker 1: particularly when you look at property players this week, what 43 00:02:07,800 --> 00:02:10,760 Speaker 1: further kind of moves and needed from authorities? And do 44 00:02:10,760 --> 00:02:16,200 Speaker 1: you think we've seen peak China pessimism. I think the 45 00:02:16,200 --> 00:02:19,480 Speaker 1: thing the market is looking for is some opening up 46 00:02:19,600 --> 00:02:23,120 Speaker 1: in terms of the CORVID restrictions in this part of 47 00:02:23,120 --> 00:02:25,120 Speaker 1: the world. And I'm in Hong Kong right now. It's 48 00:02:25,160 --> 00:02:28,720 Speaker 1: it's incredibly difficult to travel around the region relative to 49 00:02:28,919 --> 00:02:31,840 Speaker 1: traveling in Europe UM and going back to Japan before 50 00:02:31,840 --> 00:02:35,840 Speaker 1: we touched on China. In Japan, Japan's restricting arrival just 51 00:02:35,960 --> 00:02:39,840 Speaker 1: at twenty thousand per day, that's done really eighty percent 52 00:02:39,960 --> 00:02:42,919 Speaker 1: of what Japan was that its peak pre COVID. And 53 00:02:43,000 --> 00:02:44,840 Speaker 1: picking up on some of the calls that you have, 54 00:02:44,960 --> 00:02:48,880 Speaker 1: particularly on turning constructive on growth stocks in Asia, I 55 00:02:48,919 --> 00:02:50,680 Speaker 1: wanted to get your thoughts on on some of the 56 00:02:50,720 --> 00:02:54,440 Speaker 1: electric vehicle players. I mean XPANG yesterday falling very sharply 57 00:02:54,560 --> 00:02:56,680 Speaker 1: in Hong Kong and a lot of analyst saying that 58 00:02:56,680 --> 00:02:59,840 Speaker 1: that very conservative third quarter guardence disappoints. It continues to 59 00:02:59,880 --> 00:03:03,160 Speaker 1: do show the impact of the supply chain challenges and 60 00:03:03,440 --> 00:03:07,040 Speaker 1: of course the Shanghai lockdowns. But your greater view I 61 00:03:07,080 --> 00:03:10,760 Speaker 1: guess on on these EV players. I think it really 62 00:03:10,800 --> 00:03:14,639 Speaker 1: depends on your outlook in terms of time frame. One 63 00:03:14,680 --> 00:03:17,359 Speaker 1: thing that we've identified it is that Asia as a 64 00:03:17,400 --> 00:03:19,320 Speaker 1: geography is very different from the rest of the world. 65 00:03:19,400 --> 00:03:22,560 Speaker 1: A big disconnect on inflation, big disconnect on interest rates, 66 00:03:22,840 --> 00:03:25,679 Speaker 1: and also big disconnect on currency. But in terms of industries, 67 00:03:25,760 --> 00:03:30,359 Speaker 1: what we've spotted is um companies such as Jundi, such 68 00:03:30,360 --> 00:03:33,640 Speaker 1: as Kia and Korea, they are now taking more and 69 00:03:33,680 --> 00:03:36,560 Speaker 1: more share in that EV space. And you know, while 70 00:03:36,880 --> 00:03:41,120 Speaker 1: Tesla is identified as the company which is dominating the 71 00:03:41,120 --> 00:03:43,320 Speaker 1: EV space, we have an answer to that in Asia 72 00:03:43,360 --> 00:03:45,840 Speaker 1: as well. And of course China has these manufacturers which 73 00:03:46,040 --> 00:03:48,920 Speaker 1: have got similar statas domestically, which are not as well 74 00:03:49,040 --> 00:03:53,720 Speaker 1: socialized as Tesla is. What about the overall property sector 75 00:03:53,760 --> 00:03:55,720 Speaker 1: that we did touch on some of the challenges earlier 76 00:03:55,720 --> 00:03:57,760 Speaker 1: with with China's economy. I mean, you look at the 77 00:03:57,920 --> 00:04:01,559 Speaker 1: developer Logan Group yesterday in Hong Kong, really just underpinning 78 00:04:01,600 --> 00:04:04,520 Speaker 1: the property crisis that's dragging on the economy. When do we, 79 00:04:04,560 --> 00:04:08,640 Speaker 1: I guess, see peak pessimism in the property sector. Well, 80 00:04:08,680 --> 00:04:12,000 Speaker 1: I think the one big difference we have between China 81 00:04:12,200 --> 00:04:14,680 Speaker 1: and the rest of the world, especially the Western world. 82 00:04:15,160 --> 00:04:17,040 Speaker 1: Is that going back to the US, we've got the 83 00:04:17,120 --> 00:04:20,480 Speaker 1: Jackson Hall event this weekend and rates will be going up, 84 00:04:20,680 --> 00:04:24,040 Speaker 1: not down. In China, race will be going down and 85 00:04:24,120 --> 00:04:26,680 Speaker 1: not up. In other words, age is quite a big 86 00:04:26,720 --> 00:04:30,640 Speaker 1: diversification play, and typically in the property sector, when we 87 00:04:30,680 --> 00:04:33,000 Speaker 1: have periods of lower interest rates, that's good for the 88 00:04:33,040 --> 00:04:37,000 Speaker 1: property sector. So we think in changes in industry expectations 89 00:04:37,000 --> 00:04:40,480 Speaker 1: will add some substance and sub support for that sector. 90 00:04:41,160 --> 00:04:43,760 Speaker 1: Certainly the divergence in interest rates, but also, as we 91 00:04:43,800 --> 00:04:46,039 Speaker 1: mentioned before, the strength of the dollar, and that's seeing 92 00:04:46,120 --> 00:04:49,120 Speaker 1: the one hold near a two year low yesterday, a 93 00:04:49,200 --> 00:04:52,039 Speaker 1: pretty strong fixed from the PBOC. Is that kind of 94 00:04:52,080 --> 00:04:54,720 Speaker 1: giving some indication they don't want further weakness. And how 95 00:04:54,800 --> 00:04:59,559 Speaker 1: much does a weaker you are just complicate things for authorities. Well, 96 00:04:59,600 --> 00:05:01,960 Speaker 1: I guess from the China perspective, there are a couple 97 00:05:02,000 --> 00:05:05,560 Speaker 1: of things to be concerned about. One is keeping a 98 00:05:05,600 --> 00:05:09,560 Speaker 1: stable currency shows that China is determined to remain on 99 00:05:09,600 --> 00:05:12,840 Speaker 1: the international stage. Um A lot of the realism theories 100 00:05:12,839 --> 00:05:17,799 Speaker 1: and international relations with point to giving up on relations 101 00:05:17,839 --> 00:05:21,239 Speaker 1: with the West and other countries. By let's see letting 102 00:05:21,240 --> 00:05:24,560 Speaker 1: the currency, we can. I think it's China's um concerned 103 00:05:24,560 --> 00:05:26,679 Speaker 1: about soft power in its place in the world stage. 104 00:05:26,720 --> 00:05:29,760 Speaker 1: Then then a strong currency I think is quite important. 105 00:05:29,839 --> 00:05:33,039 Speaker 1: So we suspect that, I mean, China has the policy 106 00:05:33,040 --> 00:05:35,360 Speaker 1: measures to deal with all of these things. And unlike 107 00:05:35,720 --> 00:05:38,719 Speaker 1: Western economies where central banks have given a great degree 108 00:05:38,720 --> 00:05:41,240 Speaker 1: of independence, in the case of China, all of the 109 00:05:41,279 --> 00:05:45,040 Speaker 1: power is concentrated in the decision making of one team, 110 00:05:45,120 --> 00:05:47,440 Speaker 1: and that makes it easier to get things done. And 111 00:05:47,480 --> 00:05:49,560 Speaker 1: just getting back to the inflation picture, because you've rightly 112 00:05:49,560 --> 00:05:52,359 Speaker 1: pointed out that inflation across this part of the world 113 00:05:52,440 --> 00:05:54,080 Speaker 1: is is very key too, and a lot of that 114 00:05:54,200 --> 00:05:56,600 Speaker 1: is being fueled in I guess what we're seeing in 115 00:05:56,920 --> 00:06:00,920 Speaker 1: food prices. Coffee futures are extending there, So Vietnam really 116 00:06:00,920 --> 00:06:03,800 Speaker 1: fueling world supply worries for coffee. You've got the likes 117 00:06:03,800 --> 00:06:07,120 Speaker 1: of chicken rice here in Singapore surging. Two. How does 118 00:06:07,160 --> 00:06:10,400 Speaker 1: that play into these global recession fears if people can't 119 00:06:10,440 --> 00:06:13,279 Speaker 1: afford food? So, I mean, I think that is a 120 00:06:13,320 --> 00:06:16,799 Speaker 1: really good point. One of our economist city in Singapore. 121 00:06:16,880 --> 00:06:19,800 Speaker 1: So Obama has done a study of inflation in the 122 00:06:19,839 --> 00:06:22,920 Speaker 1: West VIASA. What is happening here in Asia. And what 123 00:06:22,920 --> 00:06:27,480 Speaker 1: we've identified is inflation for countries such as Korea, countries 124 00:06:27,520 --> 00:06:31,279 Speaker 1: such as Japan, countries such as Hong Kong is running 125 00:06:31,279 --> 00:06:33,320 Speaker 1: at less than half of the rate that we're seeing 126 00:06:33,400 --> 00:06:38,720 Speaker 1: in the West. So we think that the countries in 127 00:06:38,760 --> 00:06:42,560 Speaker 1: Asia have got much more resilience to inflation. And the 128 00:06:42,600 --> 00:06:45,640 Speaker 1: second thing is that the companies are listed. Companies don't 129 00:06:45,720 --> 00:06:47,760 Speaker 1: have the same levels of debt that we have in 130 00:06:47,760 --> 00:06:49,800 Speaker 1: the West. So the kind of addiction to cheap money 131 00:06:49,880 --> 00:06:51,960 Speaker 1: that we have in the West is that typesis of 132 00:06:52,000 --> 00:06:54,039 Speaker 1: what we have here in Asia because it's generally a 133 00:06:54,040 --> 00:06:57,799 Speaker 1: more conservative society, so consumer debt is lower and business 134 00:06:57,800 --> 00:06:59,839 Speaker 1: debt is lower. So I think we're much more resilience, 135 00:07:00,200 --> 00:07:02,040 Speaker 1: all right, resilient we like to hear. Jim, thank you. 136 00:07:02,120 --> 00:07:05,280 Speaker 1: Jim McCafferty, Joint head of APAC Equity Research at Themorrow, 137 00:07:05,360 --> 00:07:06,440 Speaker 1: joining us from Hong Kong.