1 00:00:00,040 --> 00:00:04,000 Speaker 1: Our guest is Middle Cathechia, head of Emerging market strategy 2 00:00:04,120 --> 00:00:07,760 Speaker 1: at t D Securities. You know, it's unusual for us 3 00:00:07,800 --> 00:00:10,559 Speaker 1: to talk about Turkey on this program, but I figure 4 00:00:10,600 --> 00:00:13,320 Speaker 1: you're the perfect person middle to talk to about it. 5 00:00:13,520 --> 00:00:17,760 Speaker 1: This was another um, sort of seemingly crazy move that 6 00:00:18,320 --> 00:00:22,120 Speaker 1: that we've been getting in Turkey. I'm just curious whether 7 00:00:22,200 --> 00:00:25,080 Speaker 1: or not you think that this kind of action can 8 00:00:25,120 --> 00:00:29,120 Speaker 1: somehow spread throughout emerging markets at all. Inflation is running 9 00:00:29,120 --> 00:00:35,520 Speaker 1: at eight percent in the country and they're cutting interest rates. Yeah. Hi, Brian, Well, look, 10 00:00:35,600 --> 00:00:39,400 Speaker 1: I think firstly, I don't expect it to spread across 11 00:00:39,400 --> 00:00:43,800 Speaker 1: the emerging markets. I think this is fairly isolated. We 12 00:00:43,880 --> 00:00:47,960 Speaker 1: know Turkey has an orthodox policy stance, and as you mentioned, 13 00:00:47,960 --> 00:00:52,680 Speaker 1: with inflation real rates you know, down sixty four percent, 14 00:00:53,520 --> 00:00:56,280 Speaker 1: it's very, very difficult to be able to be cutting 15 00:00:56,360 --> 00:01:00,000 Speaker 1: rates for any central bank at this in that environment. 16 00:01:00,120 --> 00:01:02,920 Speaker 1: So we think ultimately this will mean that you will 17 00:01:02,960 --> 00:01:05,720 Speaker 1: have to hike and ramp up rates pretty aggressively in 18 00:01:05,760 --> 00:01:08,600 Speaker 1: the months ahead. It's hard to sustain this, and also 19 00:01:08,840 --> 00:01:11,640 Speaker 1: the backlash of this will probably be felt on the currency, 20 00:01:11,720 --> 00:01:14,160 Speaker 1: so we could see the lira in the next few 21 00:01:14,240 --> 00:01:17,600 Speaker 1: weeks pushed through nineteen versus a dollar, so this is 22 00:01:17,680 --> 00:01:20,840 Speaker 1: unlikely to go you know, in the time when inflation 23 00:01:20,880 --> 00:01:24,240 Speaker 1: is so rampant. Is obviously a misstep in terms of 24 00:01:24,280 --> 00:01:28,080 Speaker 1: policy action. Let's talk about China and what we're expecting there, 25 00:01:28,120 --> 00:01:30,840 Speaker 1: particularly when we're continuing to see pretty much every day 26 00:01:30,880 --> 00:01:33,479 Speaker 1: these growth forecast cut and you're among the memory had 27 00:01:33,480 --> 00:01:36,920 Speaker 1: Goldman and the Mura yesterday. You've got China's growth forecast 28 00:01:36,959 --> 00:01:41,039 Speaker 1: at two point nine two. It's such a complication for 29 00:01:41,080 --> 00:01:43,720 Speaker 1: the PBOC, which is trying to stimulate the economy. Just 30 00:01:43,760 --> 00:01:47,880 Speaker 1: tell us your concerns about China's challenges. Yeah, I think 31 00:01:47,880 --> 00:01:52,400 Speaker 1: there are many challenges ahead for China. Clearly, the COVID 32 00:01:52,640 --> 00:01:54,560 Speaker 1: escalation again and the fact that we still have this 33 00:01:54,680 --> 00:01:57,880 Speaker 1: dynamic clearing or zero COVID policy in place, means that 34 00:01:57,920 --> 00:02:01,840 Speaker 1: there is a lot of caution still consumers and retail 35 00:02:01,880 --> 00:02:04,680 Speaker 1: activity in general. Service sector is still under some pressure, 36 00:02:05,240 --> 00:02:10,400 Speaker 1: as domestic tourism and spending remains pressured by worries about 37 00:02:10,440 --> 00:02:14,040 Speaker 1: mass testing and and COVID infections. And at the same time, 38 00:02:14,080 --> 00:02:16,440 Speaker 1: of course, now we've got this heat wave and energy 39 00:02:16,760 --> 00:02:19,919 Speaker 1: pressures that are taking place, adding to some of the 40 00:02:20,280 --> 00:02:23,560 Speaker 1: weakness on activity, and on top of that, you know, 41 00:02:23,680 --> 00:02:28,480 Speaker 1: China's property sector is clearly a major weight on the economy. 42 00:02:29,200 --> 00:02:32,640 Speaker 1: Consumers will property buyers have really been very reluctant to 43 00:02:32,680 --> 00:02:35,560 Speaker 1: purchase housing at the time. We're not even knowing when 44 00:02:35,760 --> 00:02:39,160 Speaker 1: or whether these properties will be finished entirely, so there's 45 00:02:39,200 --> 00:02:41,480 Speaker 1: a bit of a crisis there in the confidence in 46 00:02:41,520 --> 00:02:44,120 Speaker 1: the property sector is really weighing on a lot of 47 00:02:44,240 --> 00:02:47,520 Speaker 1: section sectors of the economy in China, so many challenges ahead. 48 00:02:48,040 --> 00:02:51,280 Speaker 1: We are seeing a ramp up in infrastructure spending. Exports 49 00:02:51,280 --> 00:02:53,000 Speaker 1: are a little bit more resilient, but I don't think 50 00:02:53,040 --> 00:02:55,680 Speaker 1: this is going to be enough to really get growth 51 00:02:55,760 --> 00:02:59,880 Speaker 1: back on a firmer stance. Yeah, with the currency weak 52 00:03:00,360 --> 00:03:02,440 Speaker 1: might send that signal, but as you say, it's kind 53 00:03:02,440 --> 00:03:06,519 Speaker 1: of like a big stop sign for investing in China. UM. 54 00:03:06,560 --> 00:03:08,480 Speaker 1: I wonder whether it goes so far as to say 55 00:03:08,560 --> 00:03:11,760 Speaker 1: that these huge flows that we've seen into the bond 56 00:03:11,840 --> 00:03:16,440 Speaker 1: market over time really I mean since Shi Jinping started 57 00:03:16,480 --> 00:03:19,840 Speaker 1: this um whether that gets completely reversed. I mean, does 58 00:03:19,880 --> 00:03:22,040 Speaker 1: a lot of money want to flee China now or 59 00:03:22,120 --> 00:03:24,280 Speaker 1: is it just sort of like, well, we'll hang in 60 00:03:24,320 --> 00:03:27,160 Speaker 1: there and see what happens. Well, I think if you 61 00:03:27,160 --> 00:03:29,919 Speaker 1: look at foreign flows into China last several months, we 62 00:03:30,280 --> 00:03:33,640 Speaker 1: have had negative or outflows from Chinese bond markets from 63 00:03:33,680 --> 00:03:38,240 Speaker 1: foreign investors, and that clearly has been a culmination of 64 00:03:38,240 --> 00:03:41,520 Speaker 1: all of these factors weighing on foreign investor appetite but 65 00:03:41,640 --> 00:03:44,520 Speaker 1: China at the same time equity flows were week we 66 00:03:44,600 --> 00:03:47,560 Speaker 1: had a little bit of bounced back as people or 67 00:03:47,600 --> 00:03:51,240 Speaker 1: investors or value in China equities. But clearly, you know, 68 00:03:51,240 --> 00:03:53,080 Speaker 1: at the moment, the bond market maybe one of the 69 00:03:53,080 --> 00:03:56,240 Speaker 1: places to be in China because bond fields are actually 70 00:03:56,320 --> 00:03:59,680 Speaker 1: continue to move lower. Growth warriors are adding to that. 71 00:04:00,000 --> 00:04:02,360 Speaker 1: It's a lack of credit growth is also helping bonds, 72 00:04:02,720 --> 00:04:04,839 Speaker 1: so it wants to talk about I wanted to ask 73 00:04:04,880 --> 00:04:06,880 Speaker 1: you a quick question about Larry Summer as he sat 74 00:04:07,240 --> 00:04:10,280 Speaker 1: down with David Weston as he as he does weekend 75 00:04:10,280 --> 00:04:13,840 Speaker 1: and week out on David's show, and he talked about 76 00:04:13,880 --> 00:04:16,719 Speaker 1: how China surpassing the United States is another story that 77 00:04:16,720 --> 00:04:20,240 Speaker 1: we've seen many times before, Japan surpassing the US back 78 00:04:20,279 --> 00:04:23,680 Speaker 1: in ninety and thoughts that Russia would do so at 79 00:04:23,720 --> 00:04:26,120 Speaker 1: some point as well. I just wanted to get your talk, 80 00:04:26,279 --> 00:04:29,000 Speaker 1: your thoughts on this on whether or not China is 81 00:04:29,080 --> 00:04:31,839 Speaker 1: faltering enough now that it really sets back that argument, 82 00:04:32,120 --> 00:04:36,960 Speaker 1: and whether it might never happen, Well, it's a good question. 83 00:04:37,120 --> 00:04:40,400 Speaker 1: I think certainly sets back the argument. I wouldn't necessarily 84 00:04:40,440 --> 00:04:42,760 Speaker 1: say it means that it won't happen. I think the 85 00:04:42,800 --> 00:04:46,600 Speaker 1: trajectory is probably still there. Obviously, China is struggling at 86 00:04:46,600 --> 00:04:50,960 Speaker 1: the moment to rebound post COVID, and that's obviously going 87 00:04:51,000 --> 00:04:55,120 Speaker 1: to delay that relative strength of its economy. But I 88 00:04:55,160 --> 00:04:59,520 Speaker 1: think while China is on a longer term slower economic path, 89 00:05:00,040 --> 00:05:02,839 Speaker 1: it's still probably going to have that momentum to eventually 90 00:05:02,839 --> 00:05:04,719 Speaker 1: get there and on par with the US and greater. 91 00:05:04,839 --> 00:05:08,120 Speaker 1: So I think it's just a delayed action rather than 92 00:05:08,200 --> 00:05:11,279 Speaker 1: something that's been derailed completely. But nonetheless, I think it 93 00:05:11,360 --> 00:05:13,400 Speaker 1: is right to question that at this point, given some 94 00:05:13,440 --> 00:05:16,960 Speaker 1: of the structural challenges at China is facing, because it 95 00:05:17,080 --> 00:05:20,640 Speaker 1: is frustrating for investors that want to have long term 96 00:05:20,640 --> 00:05:23,560 Speaker 1: exposure to China. I mean, they look at a country 97 00:05:23,600 --> 00:05:26,479 Speaker 1: that has so much potential and has exhibited so much 98 00:05:26,520 --> 00:05:29,679 Speaker 1: growth over the past twenty five years, and the animal 99 00:05:29,720 --> 00:05:33,080 Speaker 1: spirits are being suppressed at the moment, but they really 100 00:05:33,160 --> 00:05:36,600 Speaker 1: can be restored at some point. What do you think 101 00:05:36,640 --> 00:05:41,599 Speaker 1: the key is to restoring that. I think clearly COVID 102 00:05:41,640 --> 00:05:46,400 Speaker 1: has been a major issue and that's hit production activity, 103 00:05:46,480 --> 00:05:50,160 Speaker 1: it's restraints supply chains of multiple times. Obviously these now 104 00:05:50,160 --> 00:05:53,320 Speaker 1: in terms of supply chains, but this is affected businesses 105 00:05:53,480 --> 00:05:57,120 Speaker 1: in China and clearly weighed on investment and and really 106 00:05:57,279 --> 00:05:59,840 Speaker 1: made a lot of people rethink about investment plans. So 107 00:06:00,200 --> 00:06:02,120 Speaker 1: I think, you know, you really need there need to 108 00:06:02,120 --> 00:06:05,560 Speaker 1: be a reassessment of zero COVID policy, and if that 109 00:06:05,600 --> 00:06:08,480 Speaker 1: does happen, that could changing. And I think ultimately already 110 00:06:08,520 --> 00:06:10,800 Speaker 1: what we've seen in the last couple of years is 111 00:06:10,839 --> 00:06:14,159 Speaker 1: a shift of supply chains, more regionalization. Um, I think 112 00:06:14,160 --> 00:06:17,120 Speaker 1: that trend probably continues. So I'm not necessarily saying that 113 00:06:17,200 --> 00:06:18,679 Speaker 1: China is not going to be a place to invest, 114 00:06:18,720 --> 00:06:21,080 Speaker 1: but I think a lot of investors are reassessing the 115 00:06:21,160 --> 00:06:24,359 Speaker 1: potential for the country going forward. Yeah, we wrote a 116 00:06:24,400 --> 00:06:28,360 Speaker 1: piece yesterday on the Terminal that talks about how North 117 00:06:28,480 --> 00:06:32,800 Speaker 1: Asia has kind of gotten the COVID story wrong and 118 00:06:32,960 --> 00:06:35,479 Speaker 1: Southeast Asia has done a much better job. And I 119 00:06:35,560 --> 00:06:38,400 Speaker 1: know that you're prepared to talk about how the body 120 00:06:38,400 --> 00:06:41,919 Speaker 1: has outperformed as as tourists get back into Thailand. But 121 00:06:41,960 --> 00:06:45,880 Speaker 1: it's not just Thailand, is it. No, that's right, Um, 122 00:06:46,040 --> 00:06:49,600 Speaker 1: what we've seen through COVID is those external led economies 123 00:06:49,680 --> 00:06:54,279 Speaker 1: Career Taiwan, China have really benefited from exports of stay 124 00:06:54,320 --> 00:06:58,159 Speaker 1: at home goods, technology, et cetera, even furniture. But now 125 00:06:58,320 --> 00:07:01,840 Speaker 1: there is a rebalancing taking to domestic led economies are 126 00:07:01,880 --> 00:07:05,120 Speaker 1: really bouncing back. As you mentioned, Tourism is picking up 127 00:07:05,120 --> 00:07:09,160 Speaker 1: in the region and obviously the reduction of COVID measures 128 00:07:09,440 --> 00:07:11,600 Speaker 1: is helping on that front. At a time on the 129 00:07:11,640 --> 00:07:14,880 Speaker 1: external side for these export driven countries when things are 130 00:07:14,880 --> 00:07:17,680 Speaker 1: slowing down in the US and Europe and elsewhere, and 131 00:07:17,720 --> 00:07:20,080 Speaker 1: of course China's economy slows down, so that is going 132 00:07:20,160 --> 00:07:22,680 Speaker 1: to hurt trade orientated countries. So I think we're going 133 00:07:22,720 --> 00:07:27,080 Speaker 1: to see rebalancing continuing in the next few months on 134 00:07:27,160 --> 00:07:29,920 Speaker 1: some of the info that we've got from corporates. Uh, 135 00:07:30,200 --> 00:07:33,760 Speaker 1: just in particular the last couple of days, maybe a 136 00:07:33,800 --> 00:07:35,360 Speaker 1: little bit of light at the end of the tunnel. 137 00:07:35,560 --> 00:07:38,559 Speaker 1: Cisco talked about how supply chains are clearing a little 138 00:07:38,560 --> 00:07:41,200 Speaker 1: bit and some of those issues, and then we heard 139 00:07:41,200 --> 00:07:44,680 Speaker 1: from Applied Materials today and it actually raised its forecast 140 00:07:45,000 --> 00:07:47,960 Speaker 1: for the current quarter. Is there enough there to hang 141 00:07:48,000 --> 00:07:49,840 Speaker 1: your hat on or do you think caution is the 142 00:07:49,840 --> 00:07:54,239 Speaker 1: by word now? I think there is definitely significant easing 143 00:07:54,240 --> 00:07:56,240 Speaker 1: of supply chain pressures. I mean, that's one thing that 144 00:07:56,320 --> 00:07:59,120 Speaker 1: China's authorities have been focusing on just to make the 145 00:07:59,160 --> 00:08:03,240 Speaker 1: whole logistic called pressures ease significantly. And even if COVID 146 00:08:03,280 --> 00:08:05,000 Speaker 1: does ramp up again, we're not going to see the 147 00:08:05,080 --> 00:08:08,560 Speaker 1: same sort of closures and supply chain restrictions as we've 148 00:08:08,560 --> 00:08:10,320 Speaker 1: seen in the past. So I think that's fair to 149 00:08:10,360 --> 00:08:13,360 Speaker 1: say supply chains are easing. That's going to help goods 150 00:08:13,360 --> 00:08:16,520 Speaker 1: prices globally, including in the US, and certainly help the 151 00:08:16,600 --> 00:08:20,200 Speaker 1: inflation momentum to move lower in many economies as China 152 00:08:20,280 --> 00:08:22,640 Speaker 1: supply chains do ease up. But look, I think for 153 00:08:22,720 --> 00:08:24,840 Speaker 1: businesses there are of a question marks, and you know, 154 00:08:25,320 --> 00:08:29,520 Speaker 1: I mentioned the zero COVID policy, obviously China US trade tensions, 155 00:08:30,080 --> 00:08:33,040 Speaker 1: and of course the stance on Taiwan. There's a number 156 00:08:33,040 --> 00:08:36,319 Speaker 1: of issues that businesses still have to consider. So by 157 00:08:36,360 --> 00:08:38,960 Speaker 1: chains of easing that will help. Yeah. I was just 158 00:08:39,040 --> 00:08:41,600 Speaker 1: thinking just in the past couple of days that we're 159 00:08:41,600 --> 00:08:43,959 Speaker 1: not hearing so much about the Ukraine War. I mean, 160 00:08:44,120 --> 00:08:47,480 Speaker 1: unfortunately it's bad for Ukraine, maybe not so bad for Russia, 161 00:08:48,080 --> 00:08:49,600 Speaker 1: but it doesn't seem to be that big of a 162 00:08:49,679 --> 00:08:52,680 Speaker 1: market issue. We'll discuss that next time. Middle Middle Caitecher 163 00:08:52,840 --> 00:08:55,319 Speaker 1: from TD Securities, This is Bloomberg