Speaker 1: Let's say good morning to Thomas Ta ahead of a
Speaker 1: pack I share his investment strategy at black Rock. Thomas
Speaker 1: pretty decent rally now that we've seen through the month
Speaker 1: of July a couple of wobbles, But I think you
Speaker 1: have to say that it's it's starting to raise questions
Speaker 1: about whether or not this really is a bear market
Speaker 1: rally or whether something bigger is at hand. Your thoughts, Yeah,
Speaker 1: good morning, Happy Friday. Uh And as you said, everything
Speaker 1: is Rosalie again. Apparently it's been a very strong risk
Speaker 1: on month, uh, for particularly for US equities, not so
Speaker 1: much for for Chinese equities. But yeah, I mean I
Speaker 1: think for us not necessarily time to buy the dip here. Um.
Speaker 1: I guess that's kind of the summary. You know. It's
Speaker 1: one thing I would sort of mention is that you know,
Speaker 1: going into this month, um, what we had seen from
Speaker 1: positioning was very very pessimistic. I mean, we we've all
Speaker 1: kind of seen the Bamel survey. And also in terms
Speaker 1: of cash cash holdings that are around twenty high is overweights, sorry,
Speaker 1: underweights on equities kind of the the the highest since
Speaker 1: two thousand and eight. And when you look at also
Speaker 1: et F flows like the majority of the inflow for
Speaker 1: the first six months of the year all into short
Speaker 1: duration treasuries, defensive equities TASH positions. So it kind of
Speaker 1: makes sense that given we have seen a little bit
Speaker 1: of a pullback in inflation and expectations on rate hikes,
Speaker 1: that we see a bit of a risk rally here. Well,
Speaker 1: let's talk about inflation and when we see peak inflation,
Speaker 1: particularly as we're awaiting the key data coming through from
Speaker 1: the U S Friday. Yeah. Well, I think one thing
Speaker 1: to really mention is between April and June, before we
Speaker 1: got that sort of nine percent cp I print, which
Speaker 1: I've got a lot of press obviously, UM, we saw
Speaker 1: gasoline prices rise by about and I think that one
Speaker 1: of the one of the issues that the FED have
Speaker 1: had is that obviously US consumers are very sensitive to
Speaker 1: that UM and so I think since we've seen a
Speaker 1: pretty significant pullback in gas, oil, commodities, etcetera, that's giving
Speaker 1: the FED another Central Banks a little bit more lee
Speaker 1: way to be slightly less hawk ish than they have been.
Speaker 1: But you know, for us, we still don't think that
Speaker 1: a soft landing is really possible. So we are kind
Speaker 1: of getting to that neutral rate where the FED and
Speaker 1: other central banks have to decide whether they want to
Speaker 1: quell inflation or whether they want to support growth. So
Speaker 1: that's where we are now. I wanted to slip in
Speaker 1: a quick question on China, and we saw from the
Speaker 1: Polar Bureau yesterday. One key line was the leadership calling
Speaker 1: an officials to ensure that housing projects get completed. It
Speaker 1: seems like it really touched a nerve with people out
Speaker 1: there boycotting their mortgages. Yeah, so, I mean, I think
Speaker 1: the very interesting from that statement was that they're obviously
Speaker 1: looking for local governments to sort of shoulder that main responsibility,
Speaker 1: and they've sort of said, you know, we're not going
Speaker 1: to We're not gonna give us give some kind of
Speaker 1: the Zuker stimulus to support the housing sector. So um,
Speaker 1: you know, I think that remains one of the key risks,
Speaker 1: particularly in the fixed income market for investors. Uh, it
Speaker 1: is quite a difficult time to be investing in China
Speaker 1: for US neutral. Uh. The other thing that came out
Speaker 1: of that was no no shift on COVID zero strategy,
Speaker 1: which which is really top of top of mind for
Speaker 1: foreign investors when looking at China. So let's talk more
Speaker 1: about what you're expecting in moves in China equities in
Speaker 1: the second half. Brian was talking about the Politburo signaling
Speaker 1: no big stimulus despite the slowdown and these concerns that
Speaker 1: those mortgage boycourts could damage the second half recovery. But
Speaker 1: do you still see some potential for China shares well?
Speaker 1: The answer I guess long term is yes. I think
Speaker 1: in the in the shorter term tactically, you know, I
Speaker 1: think there's a preference for US for offshore sort of
Speaker 1: China technology type companies, just because in terms of the
Speaker 1: the things that you just mentioned around um policy, mortgages,
Speaker 1: et cetera, none of that is really impacting China technology,
Speaker 1: and also from evaluation perspective, it just looks quite interesting.
Speaker 1: But you know, we were kind of looking for more
Speaker 1: policy going into National Party Congress in October November. We're
Speaker 1: still kind of sitting on the sidelines waiting for that. So,
Speaker 1: you know, I think the the offshore a foreign sentiment
Speaker 1: towards China is very very barish at the moment. So
Speaker 1: hopefully we can get some some bear market rally, but
Speaker 1: at the moment, pessimism is quite high. The proposed Ali
Speaker 1: Baba primary listing in Hong Kong may may pave the
Speaker 1: way for a lot more companies to do it. About
Speaker 1: fifteen other Chinese companies have secondary listings here that might
Speaker 1: do the same, That could juice up the flows a
Speaker 1: lot coming in from China. Now, we don't know if
Speaker 1: all of them will qualify to be included in the
Speaker 1: stock connect, but it would it would seem to support
Speaker 1: your point that there's some opportunities there. Yeah, and and
Speaker 1: this is something we've been looking at for a couple
Speaker 1: of years. Right that the a d R declusion thing
Speaker 1: is not is not new news, but certainly the Ali
Speaker 1: baba Uh situation is quite interesting. Um. You know, I
Speaker 1: think I think for us, for for for a foreign
Speaker 1: investor perspective, it just looks a little bit more attractive
Speaker 1: versus versus Onshore where you do have some more of
Speaker 1: the issue of of continued lockdown, zero COVID strategy, the
Speaker 1: property situation. Um. So yeah, I think that that's that's
Speaker 1: kind of an area where I think investors should be
Speaker 1: looking at. But you know, whether the tech regulation situation
Speaker 1: is now finished, I think the answer is no, but
Speaker 1: I think it's certainly peaked. So so we're gonna need
Speaker 1: to see some some earnings come through, which will be
Speaker 1: starting in the next couple of weeks, and maybe that
Speaker 1: will be assigned post for investors to move back. When
Speaker 1: we look more broadly at TAK, I mean we've had
Speaker 1: warnings from the likes of Samsung, Eska, Hineks. We're looking
Speaker 1: at the big players in the US too. How much
Speaker 1: do the complications that we're seeing in the global economy Ukraine,
Speaker 1: COVID lockdowns, higher inflation or way into I guess how
Speaker 1: they're planning and whether or not consumers want to continue
Speaker 1: to buy a lot of these gadgets. Yeah, I mean
Speaker 1: it depends country to country. So you know, for for
Speaker 1: are places like South Korea, Taiwan. You know, we've been
Speaker 1: underweight those countries for the first half of the year.
Speaker 1: Uh and also also for Q three, mostly because as
Speaker 1: you mentioned, a really heavy reliance on technology growth some
Speaker 1: of these companies Samsung, TSMC, for example, and as inflation
Speaker 1: has kind of spiraled out beyond the control of central banks,
Speaker 1: we've seen really aggressive rate hikes. I think in the
Speaker 1: U s it's a little bit different, yes, and as
Speaker 1: DAK is under performing year to date, but some of
Speaker 1: these companies in the technology space are still seen by
Speaker 1: investors as defensive. So we've kind of seen that as
Speaker 1: a trend throughout the year, investors buying into some of
Speaker 1: the large cap technology companies as kind of recession playbook, whereas,
Speaker 1: as I mentioned, Korea, South Korea, Taiwan a little bit
Speaker 1: different because they are so much more reliant on exports
Speaker 1: and global growth. Just briefly, on a big broad question,
Speaker 1: the FED fund futures is suggesting on three and a
Speaker 1: quarter percent is where the Fed will get to when
Speaker 1: it pauses. With the labor market this strong? Is that
Speaker 1: the key? I mean, if the labor market stays this strong,
Speaker 1: with the terminal rate b maybe a little bit higher,
Speaker 1: I think so yes. I mean, you know we've seen
Speaker 1: that tone or rid come lower over the last few weeks. UM.
Speaker 1: A lot of it is being driven by inflation expectations. Obviously,
Speaker 1: that's that's kind of the main worry for most investors.
Speaker 1: But you know, when you look at the forward rates
Speaker 1: and projections of rate cuts into next year, that's basically
Speaker 1: telling us that the market is expecting some kind of
Speaker 1: recession if we're not already in one, and at some
Speaker 1: point the Fed will pivot pivot policy and that should
Speaker 1: be better for for risk markets. But in the meantime, uh,
Speaker 1: they're so they're so bent on on calling inflation that
Speaker 1: we we prefer not to buy the dip here, all right, Thomas,
Speaker 1: thank you as always Thomas to ahead of a pack
Speaker 1: I shares investment strategy at black Rock for from Hong Kong.
Speaker 1: And this is Bloomberg