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Speaker 1: Let's get to our guest, Kirk West, executive director of

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Speaker 1: International Business and Clients at Principal Global Investors. So, Kirk,

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Speaker 1: we had some outperformance on Wall Street over the past month.

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Speaker 1: Was it too much or do you think? Um in

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Speaker 1: line with your thinking? Well, good morning, Brian, Good morning Juliette,

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Speaker 1: thank you for having me on the show. Um. We

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Speaker 1: do think that this has more of a feeling of

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Speaker 1: a bear rally and may peter out. And what I

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Speaker 1: mean by that is we are of the camp that

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Speaker 1: inflation will be stickier than many think, and that will

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Speaker 1: require central banks globally to continue to raise interest rates

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Speaker 1: and that will ultimately impact eLearning. So again, I think

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Speaker 1: the weeks and months ahead I think will still be

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Speaker 1: a challenging time for equity markets. Kirk pointed out the

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Speaker 1: fact that while you had a pretty good rally on

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Speaker 1: the SMP five hundred for July, it was not a

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Speaker 1: good for the cs I three. How does the data

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Speaker 1: we just got out of China kind of that slowdown

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Speaker 1: effect the mood too for Asian equities. I think again

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Speaker 1: it's another headwind. Juliette, You're right, we had actually a

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Speaker 1: very strong period of out performance by AM in the

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Speaker 1: in the second quarter, and China was very much part

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Speaker 1: of that, as was as West Asia. And you have

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Speaker 1: started to see some gift back and I think you'll

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Speaker 1: continue to see some giftback. So in the case of Asia,

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Speaker 1: we think there will still be there's more earnings downgrades

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Speaker 1: to come and that will weigh on the markets prices.

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Speaker 1: And there's just such a long way to go for

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Speaker 1: the US Federal Reserve to tamp inflation down. Uh, not

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Speaker 1: just to get it to roll over, because perhaps that's

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Speaker 1: even starting to happen as we speak, but to get

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Speaker 1: it down to two percent is really going to take

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Speaker 1: some work. If you think the FED has been aggressive already,

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Speaker 1: well it's only up in that too, in a quarter range,

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Speaker 1: and some are saying that going to rate is more

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Speaker 1: like four and after five percent it could be some

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Speaker 1: pain ahead, Brian, when we would agree with you, we're

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Speaker 1: certainly at the higher end of the range. We we

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Speaker 1: expect the the FEDS terminal rate some to have a

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Speaker 1: fore in front of it, maybe four and a quarter.

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Speaker 1: And that's why we think what we saw in the

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Speaker 1: last week or the response to the Fed's commentary or

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Speaker 1: chair Powers commentary last week was a little bit um

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Speaker 1: too bullish, So we think the rates will probably peak

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Speaker 1: mid mid next year and uh, and then depending what's

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Speaker 1: happening on inflation every front, then we'll start to see

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Speaker 1: rates slowly come down and they won't they won't come

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Speaker 1: down and what they want to start coming down until

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Speaker 1: the Fed fields that they can see that kind of

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Speaker 1: two percent part in inflation. You're saying when it comes

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Speaker 1: to Fed policy rates, we will hit three and a

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Speaker 1: half percent by the year and before peaking at four

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Speaker 1: point to five next year. It is a central bank

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Speaker 1: conundrum getting ahead of this inflation print. What are you

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Speaker 1: expecting from the A b A tomorrow In terms of

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Speaker 1: the r b A, we also believe that they will

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Speaker 1: be on continue their tightening cycle, so we would look

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Speaker 1: for a further half percent increase tomorrow with with more

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Speaker 1: to come. When you look at China, which is I

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Speaker 1: guess Australia's biggest trading partner or close to it. Uh,

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Speaker 1: the the issues there seem to be so many that

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Speaker 1: it's it's really tough to quantify. And at the heart

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Speaker 1: of it, many would say is is policy because it's

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Speaker 1: the COVID policy that is is kind of shutting down

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Speaker 1: domestic consumption and is even impacting manufacturing. Uh. And we

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Speaker 1: understand also that with what's happening in the property market,

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Speaker 1: is the property crisis there, that there's this reverse wealth

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Speaker 1: effect that that is being felt by consumers. Do you

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Speaker 1: see that coming to any sort of inflection points soon? Well, Doug,

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Speaker 1: you're absolutely right. China has always been a policy driven

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Speaker 1: market and I think that will continue to be that

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Speaker 1: the major influence going forward, particularly for the period ahead. UM. Clearly,

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Speaker 1: their adherence to the COVID zero policy has impacted growth,

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Speaker 1: and I expect that will continue to impact growth depending

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Speaker 1: on how that plays out. And of course they have

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Speaker 1: those other structure issues as you've said in the property market. Um.

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Speaker 1: That all said, and you touched on Australia earlier, and

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Speaker 1: of course you know these recent numbers are not good

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Speaker 1: in terms of iron ore exports with respect to Australia.

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Speaker 1: That that all said, UM, we do believe that the

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Speaker 1: the government will be absolutely committed on by that, I

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Speaker 1: mean the Chinese government in terms of stimulating the economy.

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Speaker 1: So while we think it's still going to be a

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Speaker 1: rocky period ahead, we would expect to end a year

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Speaker 1: higher than where we are today. And while we are

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Speaker 1: actually slightly underweight emerging market equities in terms of our

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Speaker 1: overall asset allocation. We're actually market weight China because we

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Speaker 1: do believe policy will stimulate, a policy will ultimately come

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Speaker 1: through and that will be good for earnings. At what point, though,

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Speaker 1: is that enough and meaningful enough to lift overall global growth,

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Speaker 1: particularly if we continue to see China adopt this Courvid

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Speaker 1: zero policy stance, Juliet, That's that's the that's a million

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Speaker 1: dollar question because as the second largest economy, what happens

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Speaker 1: in terms of Chinese growth is very very important terms

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Speaker 1: of overall global growth. And it comes back to my

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Speaker 1: earlier comments. We think global growth is synchronized on the

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Speaker 1: downside at the moment, and China is unlikely to be

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Speaker 1: there in a meaningful way for the rest of this year.

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Speaker 1: It's probably more of a three story. What is a

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Speaker 1: good solid, well, let me call it rock solid investment

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Speaker 1: in this environment, we um We like infrastructure. Infrastructure is

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Speaker 1: one of the few asset classes that can actually do

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Speaker 1: well in an inflamation every period because quite often the

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Speaker 1: income stream is linked to inflation. So we we like

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Speaker 1: uh infrastructure. We remain fully invested in equities because We

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Speaker 1: look at equities on a three to five year basis

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Speaker 1: and certainly on evaluation and a technical perspective, and that's

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Speaker 1: really what drove July's returns. That still looks attractive. It's

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Speaker 1: just on the macro or perspective at the moment or

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Speaker 1: the fundamental perspective that's holding it back. Um And in

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Speaker 1: terms of fixed income, we do like the long duration

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Speaker 1: governments as in treasuries. We do think you're going to

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Speaker 1: benefit from those um And in terms of credit, we've

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Speaker 1: done much more for quality and some investment grade and

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Speaker 1: actually also idiosyncratic kind of investments like preferred securities. We

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Speaker 1: see it's something which will perform well in its environment.

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Speaker 1: All right, Kirk, thank you so much. We'll see you

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Speaker 1: on TV and a couple of hours as well. Kirkwest

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Speaker 1: is executive director of International Business and Clients at Principal

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Speaker 1: Global Investors. On the line from Singapore for US here

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Speaker 1: on Bloomberg Daybreak Asia