Speaker 1: Let's get to our guest. Omar Slim is with us.
Speaker 1: He is senior portfolio manager of Asia Fixed Income at
Speaker 1: pine Bridge Investments. He's on the line from a Singapore
Speaker 1: Thanks for being with us, Omar. We're focused on the
Speaker 1: Fed minutes, trying to read the tea leaves, so to speak.
Speaker 1: A couple of things we learned. I mean, obviously rate
Speaker 1: hikes are going to continue. We know there's a lot
Speaker 1: of work that needs to be done in order to
Speaker 1: get inflation under control, and then a slower pace at
Speaker 1: some point would be required. That seems logical. Now we're
Speaker 1: seemed we seem to be getting the sense of some
Speaker 1: anxiety building among a few members about the risk of overtightening.
Speaker 1: Is that really significant in your view? Well, I think
Speaker 1: the Fed minutes didn't bring anything particularly new, to be honest, Um,
Speaker 1: as you said, they said that they can potentially um
Speaker 1: start to reduce the size of the hikes, which is
Speaker 1: quite logical, and there is some concern in terms of overtyping.
Speaker 1: So there was something for everything for everyone. Really, Um,
Speaker 1: I think what's happening is that the so called factive
Speaker 1: it is more of a market narrative as opposed to
Speaker 1: a fat narrative in the sense that the market is
Speaker 1: thinking that the inflation expectations have started to respond to
Speaker 1: tighter financial conditions, and inflation has been dented that will
Speaker 1: continue to go down and as such, there are some
Speaker 1: thing risks of um inflation being completely out of control
Speaker 1: that have dissipated, and that's why we saw a positive
Speaker 1: market reaction in the past few weeks. So I think
Speaker 1: what's happening with the fact is that they're keeping goal
Speaker 1: options open, but the market narrative has changed a bit.
Speaker 1: I'm out when we look at what the bomb market
Speaker 1: is showing us about these growing recession risks, it gets
Speaker 1: to that point about whether or not we kind of
Speaker 1: almost need a recession to brain in inflation. Isn't what
Speaker 1: you're saying, Well, I think having a soft landing is possible,
Speaker 1: but I think it's very, very very difficult to achieve.
Speaker 1: So I would say it's possible, but not very probable. Um.
Speaker 1: I think what the base case scenario for us would
Speaker 1: be a slowed down without getting in a semantics, whether
Speaker 1: it's it's a recession or a technical recession and so on,
Speaker 1: but we think that there will be slow down and
Speaker 1: the recession or a recession like environment, which will likely
Speaker 1: be rather shallow. Um And yes, it does take that
Speaker 1: kind of environment to slow down the inflation that we're getting.
Speaker 1: Having said that, we are starting to see certain drivers
Speaker 1: of inflation that are slowing down, particularly when it comes
Speaker 1: to the housing market. Um. So, I think the trajectory
Speaker 1: of inflation is now on a much healthier past than
Speaker 1: where we were six months ago when the FED and
Speaker 1: pretty much all of the central banks globally we're way
Speaker 1: way behind the curve. Yeah, no doubt about that. And
Speaker 1: the commodities to your point about inflation coming off its peak,
Speaker 1: I don't know that we are at the point to
Speaker 1: be able to say, yes, we've hit peak inflation, but
Speaker 1: commodity is are lower, particularly crude oil. In about thirty seconds, O, Mark,
Speaker 1: give me your sense of how long we talk about
Speaker 1: monetary policy operating with a lag. What is that lag
Speaker 1: in your view? Well, it depends which which which, which
Speaker 1: west center back we're talking about. I think with the
Speaker 1: fact it's probably arguable that there were probably two quarters
Speaker 1: behind the curve, and I think that by year end
Speaker 1: we're going to be in a much better shape in
Speaker 1: terms of firmly than think the inflation le trajectory. I
Speaker 1: think Europe is a different story, particularly given that there
Speaker 1: is a chance of energy crisis there and the drivers
Speaker 1: of increation in Europe are different from what we see
Speaker 1: in the US. Does that kind of mood continue given
Speaker 1: all the uncertainties and the fact that you've got some
Speaker 1: of these restrictions in terms of the COVID restrictions at
Speaker 1: the same levels they were at the heart of the pandemic.
Speaker 1: I think when it comes to China, the longest word
Speaker 1: of it is that it's difficult to see any positive
Speaker 1: catalysts UM and the situation is rather concerning on a
Speaker 1: number of france UM. I think, for instance, the China
Speaker 1: property crisis that we're seeing is potentially starting to metastize
Speaker 1: into something a bit more significant, at least in terms
Speaker 1: of some pockets of the financial system. And what we
Speaker 1: have been seeing consistently is that the China policy response
Speaker 1: um IS has been underwhelming for the past a few quarters,
Speaker 1: and I think it I'm nuture. What needs to happen
Speaker 1: is that the China policy response needs to be more
Speaker 1: robust UM and particularly when it comes to China property market,
Speaker 1: there needs to be more support measures and because they
Speaker 1: have been saying that they will be supporting the market
Speaker 1: for a while. The market is no longer given the
Speaker 1: policy make it the benefit of the doubt. So any
Speaker 1: kind of incremental policy support that we've been seeing, including
Speaker 1: the BBC cut, is being met right there skeptically. So
Speaker 1: I think they need to be more by the Chinese
Speaker 1: policy makers to turn this around. Yeah, even before that
Speaker 1: cut in the one year MLF, we had the data
Speaker 1: over the weekend showing shockingly weak aggregate financing data, about
Speaker 1: half of what economists were expecting. We know that there
Speaker 1: is rampant liquidity in the system. We were talking to
Speaker 1: one of our market reporters yesterday about this time on
Speaker 1: the show about the the probability that there the China
Speaker 1: is really in a liquidity trap right now, and if
Speaker 1: there is a remedy it hasn't been discussed. But maybe
Speaker 1: the PBOC uses the playbook of the FED, the b
Speaker 1: o J, the e c B and you start putting
Speaker 1: weak assets on your balance sheet. Would would that be
Speaker 1: a solution to the problem. Well, there's two things to
Speaker 1: say here. One is the financial transmission mechanism in China
Speaker 1: is quite different from what you see in some of
Speaker 1: the other developed markets. Meaning that it tends to the
Speaker 1: the cheap credit and the easy credit tends to flow
Speaker 1: largely into of the larger institution, particularly of their related
Speaker 1: to the sovereign. And what needs to happen now is
Speaker 1: that the liquidity needs to permeate some of the smaller
Speaker 1: companies and particularly some of the segments in the China
Speaker 1: property in the China property market. The other thing is
Speaker 1: that I think you were saying in your in your
Speaker 1: reporting that there's a few banks that are starting to
Speaker 1: downgrade the Chinese growth um we've it's for us. It
Speaker 1: has been pretty clear since the second quarter that the
Speaker 1: Chinese growth projections too ambitious. We think that there will
Speaker 1: be a substantial still down this year. So our base
Speaker 1: cases around two to three percent full year GDP growth
Speaker 1: because of a number of things, including the COVID zero,
Speaker 1: but also the increasing concerns about the China property crisis
Speaker 1: again starting to have an impact that is much broader
Speaker 1: in terms of the economy. What's your outlook though for
Speaker 1: our cn and if we do start to see a
Speaker 1: peak in US inflation, what kind of boost that gives
Speaker 1: to Southeastern Asia bonds? I think for Southeast Asia broadly
Speaker 1: and particularly in terms of currencies, UM, it is rather
Speaker 1: constructive that the market is starting to think that the
Speaker 1: main policy hikes from the major center banks, specifically feed
Speaker 1: already been priced in. So we're seeing some recovery in
Speaker 1: terms of some of the Asian currencies and I think
Speaker 1: that will that will continue. Um. The other thing is
Speaker 1: that we are seeing a re opening accelerating in South
Speaker 1: East Asia, particularly for instance in Thailand, which is starting
Speaker 1: to see the benefits of the border the opening with
Speaker 1: without massive increase in terms of tourism. So I think
Speaker 1: broadly in terms of South East Asia, particularly when it
Speaker 1: comes to currencies, we're turning more constructive. All right, Oh
Speaker 1: might great to have you with us and Muslim, a
Speaker 1: senior portfolio manager of Asia fixed income at pine Bridge Investments,
Speaker 1: joining us from Singapore.