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Speaker 1: Let's get to our guest, Hans Gerty is with this.

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Speaker 1: Hans is founder of CEO at h G Research. He

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Speaker 1: joins from Singapore. Seems like there's two prongs to today's

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Speaker 1: market action. Hans one. J. Powell basically cementing the notion

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Speaker 1: that we're going to see a reduction in the magnitude

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Speaker 1: of radio increases. The market, I think was already convinced

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Speaker 1: that that would happen at the December meeting. And then

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Speaker 1: we have the story in China and a move um

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Speaker 1: in the fight against COVID that seems to have entered

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Speaker 1: a new phase. Is there one that you think is

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Speaker 1: more dominant today, Well, for now it is. As far

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Speaker 1: as sentiment is concerned, it is China, clearly. I mean

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Speaker 1: the fat is more or less price thing that have

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Speaker 1: been transparent to what they're gonna do. They're gonna slow

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Speaker 1: down the pace of rate increases. But when it comes

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Speaker 1: to China, you have to watch what the narrative is.

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Speaker 1: The government has been demonizing these virus for the past

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Speaker 1: two and a half or even more years, and that's

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Speaker 1: told everybody how dangerous and how deadly and so on

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Speaker 1: it is, and they cannot make it harder than daily

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Speaker 1: degree turn. Although they know it has done enormous damage

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Speaker 1: to the economy and they are now intent on reopening.

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Speaker 1: But this will take time. It will take at least

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Speaker 1: six months to change the narrative, you know, increase the

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Speaker 1: vaccination rate and so on. But we're going to see it.

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Speaker 1: So China will reopen, but it's not going to happen overnight,

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Speaker 1: and that that is a positive, and that of course

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Speaker 1: is now being discounted by financial markets. Yeah, if you're

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Speaker 1: investing in China at this time, you're gonna need a

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Speaker 1: fairly strong stomach, though, because the experience of other company

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Speaker 1: countries suggests it's it's a bumpy ride out of this. Well, definitely,

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Speaker 1: of course. I mean this is really for aggressive investors.

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Speaker 1: We have seen the sharp drop in stock price then

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Speaker 1: equally sharp rebound, so this is gonna be a slog

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Speaker 1: I mean, it's not going to go up in a

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Speaker 1: straight line. It will there will be setbacks. Probably we're

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Speaker 1: going to enter trate arrange somewhere. So in order to

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Speaker 1: go into China you have to be have to have

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Speaker 1: a fairly aggressive investment mindset. Hans, does this necessarily mean

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Speaker 1: the shift in COVID policy, Does it necessarily mean that

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Speaker 1: there's going to be less in the way of accommodation

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Speaker 1: coming from kind of the traditional sources like the p BOC. Yes,

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Speaker 1: that could be possible, but of course they have to

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Speaker 1: the shore of the economy. I mean, they have to

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Speaker 1: have two things. Number one, the dead level which is

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Speaker 1: very high, so they have to be careful not to

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Speaker 1: over stimulate. On the other hand, of course, the economy

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Speaker 1: has slowed down considerably, shows considerable weakness, and we have

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Speaker 1: seen with the reserve we say recrime the ratio cut

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Speaker 1: last week, that they have serious in trying to support

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Speaker 1: the economy. But if the opening happens and that it's

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Speaker 1: not not a question of that's actually questionable when, then

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Speaker 1: of course they can pull back on the some of

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Speaker 1: these stimulus. But as I said, it's going to take time,

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Speaker 1: and Doug mentioned the start. There are two main drivers

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Speaker 1: of today's price action. We've talked a bit about China,

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Speaker 1: but I want to talk a little bit about the

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Speaker 1: fit as well. JPL signaling as we kind of expect

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Speaker 1: that there's going to be a downshift in the size

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Speaker 1: of the rate hikes, but they could go on for

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Speaker 1: quite some time. Do you think valuations adequately reflect this. Actually,

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Speaker 1: I'm afraid they don't, because yes, they will scale down

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Speaker 1: or the pace of rate increases. But all this tightening

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Speaker 1: that we have seen over over the past year or

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Speaker 1: so essentially works through the economy with a time lag,

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Speaker 1: and we have not seen the full brant of that yet.

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Speaker 1: That's yet to come, So it could be anywhere six

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Speaker 1: to eighteen months out, which means that earnings will earning

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Speaker 1: estimates will come under pressures. Earnings down grades are almost

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Speaker 1: inevitability stage. And if you look at evaluations today based

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Speaker 1: on today's forward earnings, which I'm up being downgraded. Yet

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Speaker 1: we're talking about seventeen times earning in the SMP five hundred. Now,

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Speaker 1: seventeen times is not cheap. Fifteen times will be the average.

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Speaker 1: But in the recession you could see price earnings going

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Speaker 1: down to twelve times or something like that, and that

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Speaker 1: comes before the earnings down grade. So there is considerable

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Speaker 1: downside risking equities. The time legs are extremely important and

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Speaker 1: critical here. So does that mean that you're favoring fixed

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Speaker 1: income right now? You would avoid equities and look for

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Speaker 1: opportunities and investment grade bonds, Yes, especially treasury bonds. I mean,

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Speaker 1: if you look at the ten year UM ten your

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Speaker 1: bonds seem to be at the deal that seems to

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Speaker 1: be topping out simply because inflation rates are starting to

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Speaker 1: colm down. I mean, inflation is still high, but the

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Speaker 1: rate of change is becoming less. So this, this in

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Speaker 1: the long run, will in the medium to long term,

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Speaker 1: will benefit long longer day that yours treasuries. And if

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Speaker 1: you look at the shape of the yield curve, whenever

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Speaker 1: you had any version of this magnitude that we have

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Speaker 1: now practically every time this happens, bonds outperformed equities by

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Speaker 1: five basis points on average over the ensuing twelve months.

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Speaker 1: So on the relative phasis, bonds are clearly attractive here,

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Speaker 1: and that would stick to the highest quality. And in fact,

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Speaker 1: if you are very defense, if you're if you're in

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Speaker 1: capital preservational, you can also buy a two year treasury

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Speaker 1: which will be form a half percent yield risk free.

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Speaker 1: So that's more of a defensive posture here. But I

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Speaker 1: think that's the environment we're in right now. Yeah, how

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Speaker 1: about your outlook for the dollar as well. We're seeing

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Speaker 1: its retreat today with down to one thirty six against

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Speaker 1: the end. Do you see the speed of this, of

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Speaker 1: these declines continuing, I think the dollar probably has peaked

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Speaker 1: against most currentcies. I think notably against Asian currencies, because

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Speaker 1: for hire, a strong dollar is really a huge head wing,

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Speaker 1: because Asian countries have a lot of text denominated in dollars,

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Speaker 1: a lot of this that will come you over the

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Speaker 1: of the next twelve or twenty four months. And with

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Speaker 1: the week a dollar, the TEDT servicing costs will be

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Speaker 1: a lot lower, and that will benefit Asia more so

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Speaker 1: than it does Europe. I would I would imagine that

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Speaker 1: Asian currencies will be the main beneficiary of a week

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Speaker 1: or dollar, and I think the dollar has probably peaked here.

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Speaker 1: Some of the inflationary pressure that we've seen is tied

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Speaker 1: to war in Ukraine. Are you may be willing to

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Speaker 1: go out on a limb? Could we be looking at

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Speaker 1: the end of this conflict in well, I hope for it.

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Speaker 1: I mean I've been wandering for the past nine months,

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Speaker 1: ever since this escalation started. What is the end game here?

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Speaker 1: I mean, the West is pledging weapons more weapons to Ukraine,

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Speaker 1: and they seem to be betting on a military victory.

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Speaker 1: And my argument here is that to expect the military

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Speaker 1: solution to this conflict is unrealistic. Neither side is able

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Speaker 1: to win militarily. The risk that we have is that

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Speaker 1: one side starts to lose and the other side starts

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Speaker 1: to escalate even more. And what we're dealing with is

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Speaker 1: the nuclear power. In fact, Russia is the biggest nuclear

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Speaker 1: power on the planet in terms of the number of warheads,

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Speaker 1: and this is a strategy that is a bit scary.

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Speaker 1: What I'm missing here at the moment is even the

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Speaker 1: attempt to start peace talks or negotiations or anything. Everybody

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Speaker 1: still talks about escalation and that, in a way is disturbing.

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Speaker 1: So I think we have to get out of this. Yeah,

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Speaker 1: disturbing indeed. Hans Gertie, founder n CEO at HG Research