1 00:00:00,040 --> 00:00:02,080 Speaker 1: Let's get to our guest. Omar Slim is with us. 2 00:00:02,080 --> 00:00:05,920 Speaker 1: He is senior portfolio manager of Asia Fixed Income at 3 00:00:05,960 --> 00:00:09,600 Speaker 1: pine Bridge Investments. He's on the line from a Singapore 4 00:00:10,240 --> 00:00:12,959 Speaker 1: Thanks for being with us, Omar. We're focused on the 5 00:00:12,960 --> 00:00:16,000 Speaker 1: Fed minutes, trying to read the tea leaves, so to speak. 6 00:00:16,079 --> 00:00:18,720 Speaker 1: A couple of things we learned. I mean, obviously rate 7 00:00:18,800 --> 00:00:20,520 Speaker 1: hikes are going to continue. We know there's a lot 8 00:00:20,520 --> 00:00:22,319 Speaker 1: of work that needs to be done in order to 9 00:00:22,320 --> 00:00:25,720 Speaker 1: get inflation under control, and then a slower pace at 10 00:00:25,760 --> 00:00:29,680 Speaker 1: some point would be required. That seems logical. Now we're 11 00:00:29,720 --> 00:00:32,120 Speaker 1: seemed we seem to be getting the sense of some 12 00:00:32,320 --> 00:00:36,559 Speaker 1: anxiety building among a few members about the risk of overtightening. 13 00:00:36,600 --> 00:00:41,480 Speaker 1: Is that really significant in your view? Well, I think 14 00:00:41,520 --> 00:00:46,559 Speaker 1: the Fed minutes didn't bring anything particularly new, to be honest, Um, 15 00:00:46,760 --> 00:00:52,360 Speaker 1: as you said, they said that they can potentially um 16 00:00:52,520 --> 00:00:57,320 Speaker 1: start to reduce the size of the hikes, which is 17 00:00:57,400 --> 00:01:01,000 Speaker 1: quite logical, and there is some concern in terms of overtyping. 18 00:01:01,040 --> 00:01:05,039 Speaker 1: So there was something for everything for everyone. Really, Um, 19 00:01:05,080 --> 00:01:08,400 Speaker 1: I think what's happening is that the so called factive 20 00:01:08,480 --> 00:01:11,400 Speaker 1: it is more of a market narrative as opposed to 21 00:01:11,480 --> 00:01:14,640 Speaker 1: a fat narrative in the sense that the market is 22 00:01:14,680 --> 00:01:18,920 Speaker 1: thinking that the inflation expectations have started to respond to 23 00:01:19,000 --> 00:01:22,240 Speaker 1: tighter financial conditions, and inflation has been dented that will 24 00:01:22,280 --> 00:01:25,200 Speaker 1: continue to go down and as such, there are some 25 00:01:25,280 --> 00:01:30,080 Speaker 1: thing risks of um inflation being completely out of control 26 00:01:30,400 --> 00:01:33,680 Speaker 1: that have dissipated, and that's why we saw a positive 27 00:01:33,680 --> 00:01:37,000 Speaker 1: market reaction in the past few weeks. So I think 28 00:01:37,040 --> 00:01:39,080 Speaker 1: what's happening with the fact is that they're keeping goal 29 00:01:39,120 --> 00:01:41,880 Speaker 1: options open, but the market narrative has changed a bit. 30 00:01:43,440 --> 00:01:45,640 Speaker 1: I'm out when we look at what the bomb market 31 00:01:45,760 --> 00:01:48,919 Speaker 1: is showing us about these growing recession risks, it gets 32 00:01:48,960 --> 00:01:50,600 Speaker 1: to that point about whether or not we kind of 33 00:01:50,640 --> 00:01:53,320 Speaker 1: almost need a recession to brain in inflation. Isn't what 34 00:01:53,360 --> 00:01:59,600 Speaker 1: you're saying, Well, I think having a soft landing is possible, 35 00:01:59,760 --> 00:02:02,160 Speaker 1: but I think it's very, very very difficult to achieve. 36 00:02:02,200 --> 00:02:05,440 Speaker 1: So I would say it's possible, but not very probable. Um. 37 00:02:05,600 --> 00:02:07,920 Speaker 1: I think what the base case scenario for us would 38 00:02:07,920 --> 00:02:11,440 Speaker 1: be a slowed down without getting in a semantics, whether 39 00:02:11,480 --> 00:02:13,919 Speaker 1: it's it's a recession or a technical recession and so on, 40 00:02:14,080 --> 00:02:17,160 Speaker 1: but we think that there will be slow down and 41 00:02:17,200 --> 00:02:20,320 Speaker 1: the recession or a recession like environment, which will likely 42 00:02:20,320 --> 00:02:24,960 Speaker 1: be rather shallow. Um And yes, it does take that 43 00:02:25,040 --> 00:02:28,040 Speaker 1: kind of environment to slow down the inflation that we're getting. 44 00:02:29,080 --> 00:02:32,040 Speaker 1: Having said that, we are starting to see certain drivers 45 00:02:32,040 --> 00:02:35,360 Speaker 1: of inflation that are slowing down, particularly when it comes 46 00:02:35,360 --> 00:02:39,639 Speaker 1: to the housing market. Um. So, I think the trajectory 47 00:02:39,680 --> 00:02:42,400 Speaker 1: of inflation is now on a much healthier past than 48 00:02:42,440 --> 00:02:45,680 Speaker 1: where we were six months ago when the FED and 49 00:02:45,840 --> 00:02:48,679 Speaker 1: pretty much all of the central banks globally we're way 50 00:02:48,720 --> 00:02:51,040 Speaker 1: way behind the curve. Yeah, no doubt about that. And 51 00:02:51,120 --> 00:02:55,120 Speaker 1: the commodities to your point about inflation coming off its peak, 52 00:02:55,200 --> 00:02:57,160 Speaker 1: I don't know that we are at the point to 53 00:02:57,200 --> 00:02:59,520 Speaker 1: be able to say, yes, we've hit peak inflation, but 54 00:02:59,560 --> 00:03:03,679 Speaker 1: commodity is are lower, particularly crude oil. In about thirty seconds, O, Mark, 55 00:03:04,400 --> 00:03:07,079 Speaker 1: give me your sense of how long we talk about 56 00:03:07,440 --> 00:03:10,400 Speaker 1: monetary policy operating with a lag. What is that lag 57 00:03:10,480 --> 00:03:14,800 Speaker 1: in your view? Well, it depends which which which, which 58 00:03:15,480 --> 00:03:17,440 Speaker 1: west center back we're talking about. I think with the 59 00:03:17,480 --> 00:03:21,079 Speaker 1: fact it's probably arguable that there were probably two quarters 60 00:03:21,120 --> 00:03:23,440 Speaker 1: behind the curve, and I think that by year end 61 00:03:23,480 --> 00:03:25,240 Speaker 1: we're going to be in a much better shape in 62 00:03:25,360 --> 00:03:29,560 Speaker 1: terms of firmly than think the inflation le trajectory. I 63 00:03:29,600 --> 00:03:32,560 Speaker 1: think Europe is a different story, particularly given that there 64 00:03:32,639 --> 00:03:36,040 Speaker 1: is a chance of energy crisis there and the drivers 65 00:03:36,080 --> 00:03:38,640 Speaker 1: of increation in Europe are different from what we see 66 00:03:38,680 --> 00:03:42,280 Speaker 1: in the US. Does that kind of mood continue given 67 00:03:42,360 --> 00:03:44,280 Speaker 1: all the uncertainties and the fact that you've got some 68 00:03:44,360 --> 00:03:47,040 Speaker 1: of these restrictions in terms of the COVID restrictions at 69 00:03:47,080 --> 00:03:49,480 Speaker 1: the same levels they were at the heart of the pandemic. 70 00:03:50,360 --> 00:03:52,480 Speaker 1: I think when it comes to China, the longest word 71 00:03:52,520 --> 00:03:55,000 Speaker 1: of it is that it's difficult to see any positive 72 00:03:55,040 --> 00:03:59,640 Speaker 1: catalysts UM and the situation is rather concerning on a 73 00:03:59,720 --> 00:04:03,440 Speaker 1: number of france UM. I think, for instance, the China 74 00:04:03,520 --> 00:04:07,960 Speaker 1: property crisis that we're seeing is potentially starting to metastize 75 00:04:08,640 --> 00:04:13,800 Speaker 1: into something a bit more significant, at least in terms 76 00:04:13,800 --> 00:04:16,839 Speaker 1: of some pockets of the financial system. And what we 77 00:04:16,880 --> 00:04:20,680 Speaker 1: have been seeing consistently is that the China policy response 78 00:04:21,120 --> 00:04:26,360 Speaker 1: um IS has been underwhelming for the past a few quarters, 79 00:04:26,480 --> 00:04:28,360 Speaker 1: and I think it I'm nuture. What needs to happen 80 00:04:28,520 --> 00:04:30,680 Speaker 1: is that the China policy response needs to be more 81 00:04:30,760 --> 00:04:35,360 Speaker 1: robust UM and particularly when it comes to China property market, 82 00:04:35,440 --> 00:04:39,080 Speaker 1: there needs to be more support measures and because they 83 00:04:39,080 --> 00:04:41,359 Speaker 1: have been saying that they will be supporting the market 84 00:04:41,440 --> 00:04:45,960 Speaker 1: for a while. The market is no longer given the 85 00:04:45,960 --> 00:04:49,560 Speaker 1: policy make it the benefit of the doubt. So any 86 00:04:49,800 --> 00:04:54,000 Speaker 1: kind of incremental policy support that we've been seeing, including 87 00:04:54,000 --> 00:04:59,400 Speaker 1: the BBC cut, is being met right there skeptically. So 88 00:04:59,440 --> 00:05:01,240 Speaker 1: I think they need to be more by the Chinese 89 00:05:01,240 --> 00:05:03,880 Speaker 1: policy makers to turn this around. Yeah, even before that 90 00:05:04,040 --> 00:05:06,440 Speaker 1: cut in the one year MLF, we had the data 91 00:05:06,480 --> 00:05:11,719 Speaker 1: over the weekend showing shockingly weak aggregate financing data, about 92 00:05:11,720 --> 00:05:15,400 Speaker 1: half of what economists were expecting. We know that there 93 00:05:15,520 --> 00:05:18,200 Speaker 1: is rampant liquidity in the system. We were talking to 94 00:05:18,279 --> 00:05:21,240 Speaker 1: one of our market reporters yesterday about this time on 95 00:05:21,279 --> 00:05:25,440 Speaker 1: the show about the the probability that there the China 96 00:05:25,520 --> 00:05:28,200 Speaker 1: is really in a liquidity trap right now, and if 97 00:05:28,240 --> 00:05:31,840 Speaker 1: there is a remedy it hasn't been discussed. But maybe 98 00:05:31,880 --> 00:05:35,200 Speaker 1: the PBOC uses the playbook of the FED, the b 99 00:05:35,320 --> 00:05:37,640 Speaker 1: o J, the e c B and you start putting 100 00:05:38,080 --> 00:05:41,760 Speaker 1: weak assets on your balance sheet. Would would that be 101 00:05:41,800 --> 00:05:46,000 Speaker 1: a solution to the problem. Well, there's two things to 102 00:05:46,000 --> 00:05:49,599 Speaker 1: say here. One is the financial transmission mechanism in China 103 00:05:49,720 --> 00:05:51,520 Speaker 1: is quite different from what you see in some of 104 00:05:51,560 --> 00:05:55,080 Speaker 1: the other developed markets. Meaning that it tends to the 105 00:05:55,080 --> 00:05:58,239 Speaker 1: the cheap credit and the easy credit tends to flow 106 00:05:59,040 --> 00:06:04,160 Speaker 1: largely into of the larger institution, particularly of their related 107 00:06:04,200 --> 00:06:07,039 Speaker 1: to the sovereign. And what needs to happen now is 108 00:06:07,080 --> 00:06:09,960 Speaker 1: that the liquidity needs to permeate some of the smaller 109 00:06:10,640 --> 00:06:14,039 Speaker 1: companies and particularly some of the segments in the China 110 00:06:14,080 --> 00:06:17,599 Speaker 1: property in the China property market. The other thing is 111 00:06:17,640 --> 00:06:19,200 Speaker 1: that I think you were saying in your in your 112 00:06:19,200 --> 00:06:21,960 Speaker 1: reporting that there's a few banks that are starting to 113 00:06:22,040 --> 00:06:26,039 Speaker 1: downgrade the Chinese growth um we've it's for us. It 114 00:06:26,080 --> 00:06:28,360 Speaker 1: has been pretty clear since the second quarter that the 115 00:06:28,440 --> 00:06:33,320 Speaker 1: Chinese growth projections too ambitious. We think that there will 116 00:06:33,360 --> 00:06:36,560 Speaker 1: be a substantial still down this year. So our base 117 00:06:36,640 --> 00:06:39,400 Speaker 1: cases around two to three percent full year GDP growth 118 00:06:40,000 --> 00:06:42,599 Speaker 1: because of a number of things, including the COVID zero, 119 00:06:42,720 --> 00:06:48,200 Speaker 1: but also the increasing concerns about the China property crisis 120 00:06:48,920 --> 00:06:51,520 Speaker 1: again starting to have an impact that is much broader 121 00:06:51,520 --> 00:06:54,640 Speaker 1: in terms of the economy. What's your outlook though for 122 00:06:54,800 --> 00:06:56,640 Speaker 1: our cn and if we do start to see a 123 00:06:56,640 --> 00:06:59,320 Speaker 1: peak in US inflation, what kind of boost that gives 124 00:06:59,360 --> 00:07:04,240 Speaker 1: to Southeastern Asia bonds? I think for Southeast Asia broadly 125 00:07:04,279 --> 00:07:08,560 Speaker 1: and particularly in terms of currencies, UM, it is rather 126 00:07:08,640 --> 00:07:13,200 Speaker 1: constructive that the market is starting to think that the 127 00:07:14,200 --> 00:07:17,960 Speaker 1: main policy hikes from the major center banks, specifically feed 128 00:07:18,360 --> 00:07:22,080 Speaker 1: already been priced in. So we're seeing some recovery in 129 00:07:22,160 --> 00:07:24,720 Speaker 1: terms of some of the Asian currencies and I think 130 00:07:24,760 --> 00:07:29,080 Speaker 1: that will that will continue. Um. The other thing is 131 00:07:29,160 --> 00:07:33,679 Speaker 1: that we are seeing a re opening accelerating in South 132 00:07:33,680 --> 00:07:37,480 Speaker 1: East Asia, particularly for instance in Thailand, which is starting 133 00:07:37,520 --> 00:07:40,560 Speaker 1: to see the benefits of the border the opening with 134 00:07:40,560 --> 00:07:43,760 Speaker 1: without massive increase in terms of tourism. So I think 135 00:07:43,840 --> 00:07:46,880 Speaker 1: broadly in terms of South East Asia, particularly when it 136 00:07:46,880 --> 00:07:50,560 Speaker 1: comes to currencies, we're turning more constructive. All right, Oh 137 00:07:50,600 --> 00:07:52,040 Speaker 1: might great to have you with us and Muslim, a 138 00:07:52,120 --> 00:07:55,600 Speaker 1: senior portfolio manager of Asia fixed income at pine Bridge Investments, 139 00:07:55,720 --> 00:07:57,360 Speaker 1: joining us from Singapore.