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Speaker 1: Our guest is June BAILEEU portfolio manager, Tribeca Investment Partners. So, June,

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Speaker 1: we heard there from the minutes pretty unified and hawkish message.

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Speaker 1: But stocks were up, treasury yields were down, and the

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Speaker 1: dollar fell and all that sends a message that runs

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Speaker 1: counter to what the Fed actually wants. The Fed wants

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Speaker 1: tighter financial conditions and they loosened up. Is a battle

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Speaker 1: shaping up here. Look, I think you're absolutely right, UM,

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Speaker 1: FED is send trying to send a very clear signal

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Speaker 1: that UM, the rate cut is not is not absolutely

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Speaker 1: on the horizon. It really depends on where the inflation

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Speaker 1: goes and where economic slowdown take place when that takes place.

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Speaker 1: So I do think the market is sort of sort

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Speaker 1: of at this point becoming a little bit too optimistic

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Speaker 1: as we're heading into an earning recession UM in the

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Speaker 1: next few months. Um, look at the market at this point,

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Speaker 1: it's still very thin trading early in the year when

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Speaker 1: everyone's on holiday. We do expect the market to weaken

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Speaker 1: off as we're heading towards the the reporting earning seasons.

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Speaker 1: Do you think that the Alice have got a bit

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Speaker 1: ahead of themselves in predicting what will happen in terms

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Speaker 1: of earnings growth coming in. Look. Absolutely, I think the

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Speaker 1: market is market is the market. They're always trying to

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Speaker 1: look far ahead. Uh, and many of the market participants,

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Speaker 1: given the very tough year last year, has been trying

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Speaker 1: very hard to uh to position themselves for a stronger year. Now.

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Speaker 1: Argue is that the next to a month, um, it's

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Speaker 1: going to be a stronger year. However, the first six

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Speaker 1: month of the year is going to be pretty tough,

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Speaker 1: just as the market, um, you know, pricing in those

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Speaker 1: earnings downgrades. We know there's down grade, but no down

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Speaker 1: grade is ever fully priced in. So um, first six months,

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Speaker 1: the first three months is going to be very tough.

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Speaker 1: That's around the world. China recovery is going to take time,

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Speaker 1: uh and uh, and then the the the consumer will

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Speaker 1: continu new to tighten belts. So um. Yeah, So it's

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Speaker 1: that's actually very difficult to see the market uh sort

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Speaker 1: of smooth sailing for the first six month of the year.

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Speaker 1: Is it fair to say, though, that the FED is

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Speaker 1: too negative and the market is too positive? Um? I

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Speaker 1: think you're absolutely right. Um. FED is trying very hard

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Speaker 1: to be very negative to get market to be a

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Speaker 1: bit more pessimistic. Um, that's why you will see more

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Speaker 1: gyration between optimism and pessimism of the in the next

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Speaker 1: six months before clear transforms. Earnings will not bottom until

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Speaker 1: probably March or March or April. UM, and um, you know,

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Speaker 1: before that take place, market just cannot have a clear trajectory. Okay,

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Speaker 1: So what does that mean for building a portfolio? I suppose, yeah, Look, absolutely,

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Speaker 1: this environment is actually really good for being active investor

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Speaker 1: because if you focus on earnings, the share price will

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Speaker 1: follow UM in the next three months, I guess, you know,

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Speaker 1: it's a it's a defensive that will do better. UM.

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Speaker 1: The earnings the company, so whose earning is not going

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Speaker 1: to get downgraded will clearly outperform. Some of the growth

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Speaker 1: companies will do better. UM. Those health care sectors will

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Speaker 1: definitely outperform in the next six month. However, once we

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Speaker 1: move past the short term earnings down gray, um, you know,

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Speaker 1: we will look forward to pick up cheaper cyclical stocks

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Speaker 1: that's been sold off, you know, and the price present value.

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Speaker 1: So you know, so it's really, yeah, another year for

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Speaker 1: a very good performance for active investors to focus on

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Speaker 1: what the earnings trajectory might look like for the companies

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Speaker 1: I just want to go back for one moment to

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Speaker 1: the FED, because with with that adage of don't fight

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Speaker 1: the Fed in mind, I mean that's normally, when the

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Speaker 1: FED has all the tools and it is also trying

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Speaker 1: to achieve a soft landing, it has a nuanced approach.

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Speaker 1: But in this case, in this case, the FED has

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Speaker 1: made it clear they don't really care that much about recession.

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Speaker 1: They will they will go far enough to slay inflation.

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Speaker 1: So let me ask you a true or false question.

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Speaker 1: Who's bigger, the data or the FED? It's the FED.

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Speaker 1: You will follow the FED that they will don't engineer

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Speaker 1: a recession. Uh, And the see I wonder about that.

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Speaker 1: I I wonder about that because the data, the market

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Speaker 1: watches the data, and and the FED will eventually have

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Speaker 1: to succumb to the data. I mean they can't just

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Speaker 1: in the face of the data raise interest rates or

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Speaker 1: get thrown out of their jobs by Congress. Right, So

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Speaker 1: I wonder you go ahead and make your case that

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Speaker 1: that you know, the data is less, if is less

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Speaker 1: important than the FED. Look at, data is important, but

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Speaker 1: it's lacking. So FED will continue to do its own

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Speaker 1: path until the data really starts showing will sign a

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Speaker 1: weakness we're seeing. It's a couple of weak datas already,

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Speaker 1: which is good. But between now and you know, some

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Speaker 1: really serious weakning in the economy and some technical recession

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Speaker 1: datas um, I just don't think FED will stop. Okay,

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Speaker 1: So that makes insnicing just to talk a little bit

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Speaker 1: about what they are looking at. Then when it comes

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Speaker 1: to other aspects, because I mean, when you look at inflation,

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Speaker 1: there are central planes right right the world saying, well,

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Speaker 1: they have a feeling it might have peaked, and given

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Speaker 1: base effects, people might be right. What's your thinking. Look,

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Speaker 1: I think that it has peaked um and as you

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Speaker 1: as you said, the base effect is higher and and

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Speaker 1: then the trajectory of some of the inflationary pressure is

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Speaker 1: certainly on the downwards. Um. The question is how long

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Speaker 1: the interest rate will stay high um and um, and

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Speaker 1: that is very unknown at this point. We do think

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Speaker 1: the market will take time to absorb, and the market

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Speaker 1: probably is too early to calling for the interest rate

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Speaker 1: to be falling just because the you know, the higher

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Speaker 1: base effect and the slowing momentum in some of the

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Speaker 1: inflation data points. So let's talk a little bit about China.

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Speaker 1: We have the reopening the lighter touch on regulation. We

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Speaker 1: saw that with hand yesterday and there's been some other

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Speaker 1: example palls and added support for the property sector. Is

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Speaker 1: that enough to continue this optimism on Chinese assets? Look,

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Speaker 1: I think, uh, if there will be continued optimism, but

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Speaker 1: near term, in the next couple of months, I just

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Speaker 1: think it would be a little bit tougher, just because

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Speaker 1: economic reality is going to be, um, pretty poor. Uh.

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Speaker 1: You know we're heading into Chinese New Year, early Chinese

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Speaker 1: New Year as well. Consumer is very nervous about the outbreak.

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Speaker 1: Uh and um, you know, travel is going to be

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Speaker 1: down and this is a key spending period, so you know,

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Speaker 1: all of that together, it certainly feels that the data

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Speaker 1: points will be weaker. Uh. You know, optimism will remain,

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Speaker 1: but you will have a bit more volatility in the

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Speaker 1: next couple of months, just as investors sort of working

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Speaker 1: out whole long this recovery might take, and as we

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Speaker 1: have seen with every other market always take longer than expected. June,

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Speaker 1: give us one stock to buy and one stock to

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Speaker 1: get rid of. Yeah, look, I will stick to healthcare

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Speaker 1: stocks at this point. You know, I would be buying

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Speaker 1: the CRSL from the Australian market and the stock to sell.

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Speaker 1: I will be a bit nervous about the consumer facing

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Speaker 1: stocks things like Apple. Um, I will be reducing my exposure.

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Speaker 1: One thing that we've seen is like even with healthcare,

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Speaker 1: I mentioned in our in our call before the show

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Speaker 1: that United Healthcare, which is a real darling last year, Uh,

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Speaker 1: it's just getting hammered at the beginning of the year.

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Speaker 1: So a lot of the big winners from last year

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Speaker 1: getting sold down and a lot of the losers getting bought.

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Speaker 1: How long does that continue? Look, I think that your

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Speaker 1: continued nuation of a lot of reversal of the winners

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Speaker 1: and losers. But healthcare, you just have to be mindful

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Speaker 1: the healthcare companies that sort of has been hurt by

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Speaker 1: pandemic but now will benefit. You don't want to buy

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Speaker 1: the healthcare company that has benefit like pathology businesses that

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Speaker 1: have done a lot of PCR tests and things. These

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Speaker 1: companies are earning willfore and you do not want to

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Speaker 1: buy those ones by the ones that like a private

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Speaker 1: hospital like the Ramsey Healthcare. Like to see yourself whose

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Speaker 1: earnings will grow irrespective of where the economic reality will be.

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Speaker 1: And at the same time still got tailwind from cycling.

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Speaker 1: Some week camps, so absolutely those ones all right, June,

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Speaker 1: thanks very much for being with us. Always fun to tustle.

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Speaker 1: June Bailu, portfolio manager at Tribeca Investment Partners