WEBVTT - Omar Slim on the Markets (Radio)

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<v Speaker 1>Let's get to our guest. Omar Slim is with us.

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<v Speaker 1>He is senior portfolio manager of Asia Fixed Income at

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<v Speaker 1>pine Bridge Investments. He's on the line from a Singapore

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<v Speaker 1>Thanks for being with us, Omar. We're focused on the

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<v Speaker 1>Fed minutes, trying to read the tea leaves, so to speak.

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<v Speaker 1>A couple of things we learned. I mean, obviously rate

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<v Speaker 1>hikes are going to continue. We know there's a lot

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<v Speaker 1>of work that needs to be done in order to

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<v Speaker 1>get inflation under control, and then a slower pace at

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<v Speaker 1>some point would be required. That seems logical. Now we're

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<v Speaker 1>seemed we seem to be getting the sense of some

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<v Speaker 1>anxiety building among a few members about the risk of overtightening.

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<v Speaker 1>Is that really significant in your view? Well, I think

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<v Speaker 1>the Fed minutes didn't bring anything particularly new, to be honest, Um,

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<v Speaker 1>as you said, they said that they can potentially um

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<v Speaker 1>start to reduce the size of the hikes, which is

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<v Speaker 1>quite logical, and there is some concern in terms of overtyping.

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<v Speaker 1>So there was something for everything for everyone. Really, Um,

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<v Speaker 1>I think what's happening is that the so called factive

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<v Speaker 1>it is more of a market narrative as opposed to

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<v Speaker 1>a fat narrative in the sense that the market is

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<v Speaker 1>thinking that the inflation expectations have started to respond to

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<v Speaker 1>tighter financial conditions, and inflation has been dented that will

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<v Speaker 1>continue to go down and as such, there are some

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<v Speaker 1>thing risks of um inflation being completely out of control

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<v Speaker 1>that have dissipated, and that's why we saw a positive

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<v Speaker 1>market reaction in the past few weeks. So I think

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<v Speaker 1>what's happening with the fact is that they're keeping goal

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<v Speaker 1>options open, but the market narrative has changed a bit.

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<v Speaker 1>I'm out when we look at what the bomb market

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<v Speaker 1>is showing us about these growing recession risks, it gets

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<v Speaker 1>to that point about whether or not we kind of

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<v Speaker 1>almost need a recession to brain in inflation. Isn't what

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<v Speaker 1>you're saying, Well, I think having a soft landing is possible,

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<v Speaker 1>but I think it's very, very very difficult to achieve.

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<v Speaker 1>So I would say it's possible, but not very probable. Um.

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<v Speaker 1>I think what the base case scenario for us would

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<v Speaker 1>be a slowed down without getting in a semantics, whether

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<v Speaker 1>it's it's a recession or a technical recession and so on,

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<v Speaker 1>but we think that there will be slow down and

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<v Speaker 1>the recession or a recession like environment, which will likely

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<v Speaker 1>be rather shallow. Um And yes, it does take that

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<v Speaker 1>kind of environment to slow down the inflation that we're getting.

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<v Speaker 1>Having said that, we are starting to see certain drivers

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<v Speaker 1>of inflation that are slowing down, particularly when it comes

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<v Speaker 1>to the housing market. Um. So, I think the trajectory

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<v Speaker 1>of inflation is now on a much healthier past than

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<v Speaker 1>where we were six months ago when the FED and

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<v Speaker 1>pretty much all of the central banks globally we're way

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<v Speaker 1>way behind the curve. Yeah, no doubt about that. And

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<v Speaker 1>the commodities to your point about inflation coming off its peak,

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<v Speaker 1>I don't know that we are at the point to

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<v Speaker 1>be able to say, yes, we've hit peak inflation, but

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<v Speaker 1>commodity is are lower, particularly crude oil. In about thirty seconds, O, Mark,

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<v Speaker 1>give me your sense of how long we talk about

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<v Speaker 1>monetary policy operating with a lag. What is that lag

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<v Speaker 1>in your view? Well, it depends which which which, which

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<v Speaker 1>west center back we're talking about. I think with the

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<v Speaker 1>fact it's probably arguable that there were probably two quarters

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<v Speaker 1>behind the curve, and I think that by year end

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<v Speaker 1>we're going to be in a much better shape in

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<v Speaker 1>terms of firmly than think the inflation le trajectory. I

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<v Speaker 1>think Europe is a different story, particularly given that there

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<v Speaker 1>is a chance of energy crisis there and the drivers

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<v Speaker 1>of increation in Europe are different from what we see

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<v Speaker 1>in the US. Does that kind of mood continue given

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<v Speaker 1>all the uncertainties and the fact that you've got some

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<v Speaker 1>of these restrictions in terms of the COVID restrictions at

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<v Speaker 1>the same levels they were at the heart of the pandemic.

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<v Speaker 1>I think when it comes to China, the longest word

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<v Speaker 1>of it is that it's difficult to see any positive

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<v Speaker 1>catalysts UM and the situation is rather concerning on a

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<v Speaker 1>number of france UM. I think, for instance, the China

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<v Speaker 1>property crisis that we're seeing is potentially starting to metastize

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<v Speaker 1>into something a bit more significant, at least in terms

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<v Speaker 1>of some pockets of the financial system. And what we

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<v Speaker 1>have been seeing consistently is that the China policy response

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<v Speaker 1>um IS has been underwhelming for the past a few quarters,

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<v Speaker 1>and I think it I'm nuture. What needs to happen

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<v Speaker 1>is that the China policy response needs to be more

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<v Speaker 1>robust UM and particularly when it comes to China property market,

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<v Speaker 1>there needs to be more support measures and because they

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<v Speaker 1>have been saying that they will be supporting the market

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<v Speaker 1>for a while. The market is no longer given the

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<v Speaker 1>policy make it the benefit of the doubt. So any

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<v Speaker 1>kind of incremental policy support that we've been seeing, including

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<v Speaker 1>the BBC cut, is being met right there skeptically. So

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<v Speaker 1>I think they need to be more by the Chinese

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<v Speaker 1>policy makers to turn this around. Yeah, even before that

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<v Speaker 1>cut in the one year MLF, we had the data

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<v Speaker 1>over the weekend showing shockingly weak aggregate financing data, about

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<v Speaker 1>half of what economists were expecting. We know that there

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<v Speaker 1>is rampant liquidity in the system. We were talking to

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<v Speaker 1>one of our market reporters yesterday about this time on

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<v Speaker 1>the show about the the probability that there the China

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<v Speaker 1>is really in a liquidity trap right now, and if

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<v Speaker 1>there is a remedy it hasn't been discussed. But maybe

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<v Speaker 1>the PBOC uses the playbook of the FED, the b

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<v Speaker 1>o J, the e c B and you start putting

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<v Speaker 1>weak assets on your balance sheet. Would would that be

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<v Speaker 1>a solution to the problem. Well, there's two things to

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<v Speaker 1>say here. One is the financial transmission mechanism in China

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<v Speaker 1>is quite different from what you see in some of

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<v Speaker 1>the other developed markets. Meaning that it tends to the

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<v Speaker 1>the cheap credit and the easy credit tends to flow

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<v Speaker 1>largely into of the larger institution, particularly of their related

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<v Speaker 1>to the sovereign. And what needs to happen now is

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<v Speaker 1>that the liquidity needs to permeate some of the smaller

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<v Speaker 1>companies and particularly some of the segments in the China

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<v Speaker 1>property in the China property market. The other thing is

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<v Speaker 1>that I think you were saying in your in your

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<v Speaker 1>reporting that there's a few banks that are starting to

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<v Speaker 1>downgrade the Chinese growth um we've it's for us. It

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<v Speaker 1>has been pretty clear since the second quarter that the

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<v Speaker 1>Chinese growth projections too ambitious. We think that there will

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<v Speaker 1>be a substantial still down this year. So our base

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<v Speaker 1>cases around two to three percent full year GDP growth

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<v Speaker 1>because of a number of things, including the COVID zero,

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<v Speaker 1>but also the increasing concerns about the China property crisis

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<v Speaker 1>again starting to have an impact that is much broader

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<v Speaker 1>in terms of the economy. What's your outlook though for

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<v Speaker 1>our cn and if we do start to see a

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<v Speaker 1>peak in US inflation, what kind of boost that gives

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<v Speaker 1>to Southeastern Asia bonds? I think for Southeast Asia broadly

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<v Speaker 1>and particularly in terms of currencies, UM, it is rather

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<v Speaker 1>constructive that the market is starting to think that the

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<v Speaker 1>main policy hikes from the major center banks, specifically feed

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<v Speaker 1>already been priced in. So we're seeing some recovery in

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<v Speaker 1>terms of some of the Asian currencies and I think

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<v Speaker 1>that will that will continue. Um. The other thing is

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<v Speaker 1>that we are seeing a re opening accelerating in South

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<v Speaker 1>East Asia, particularly for instance in Thailand, which is starting

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<v Speaker 1>to see the benefits of the border the opening with

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<v Speaker 1>without massive increase in terms of tourism. So I think

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<v Speaker 1>broadly in terms of South East Asia, particularly when it

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<v Speaker 1>comes to currencies, we're turning more constructive. All right, Oh

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<v Speaker 1>might great to have you with us and Muslim, a

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<v Speaker 1>senior portfolio manager of Asia fixed income at pine Bridge Investments,

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<v Speaker 1>joining us from Singapore.