1 00:00:00,120 --> 00:00:02,480 Speaker 1: Let's get to our guest of Assu Menon is with US, 2 00:00:02,800 --> 00:00:07,480 Speaker 1: executive director of Investment Strategy at OCBC Bank Wealth Management. 3 00:00:07,480 --> 00:00:10,799 Speaker 1: He's on the line from Singapore. Vaso, thanks for being 4 00:00:10,840 --> 00:00:13,760 Speaker 1: with us. The rate of change, if you look at 5 00:00:13,800 --> 00:00:16,560 Speaker 1: the move up and yield across the US Treasury curve, 6 00:00:16,600 --> 00:00:21,040 Speaker 1: has been stunning. It was obviously um exaggerated a bit 7 00:00:21,120 --> 00:00:24,720 Speaker 1: yesterday by the Fed's action and a very very hawkish 8 00:00:25,200 --> 00:00:28,360 Speaker 1: message from the FED chairman. Is there a pain point 9 00:00:28,440 --> 00:00:30,680 Speaker 1: for you where you just are going to retreat from 10 00:00:30,800 --> 00:00:35,320 Speaker 1: risk assets altogether because it's too difficult to predict how 11 00:00:35,360 --> 00:00:41,240 Speaker 1: this tightening cycle may impact risk assets. Uh, to be 12 00:00:41,320 --> 00:00:45,440 Speaker 1: friends with you, we are underweight equities, We underweight highl bonds. 13 00:00:45,479 --> 00:00:48,159 Speaker 1: In other words, we are you know, light on this 14 00:00:48,400 --> 00:00:51,920 Speaker 1: risk assets. But underweight doesn't mean you don't invest in 15 00:00:51,960 --> 00:00:55,440 Speaker 1: these assets. UH. You know, we're living in very unusual times. 16 00:00:55,640 --> 00:00:58,200 Speaker 1: We've got the risk of recession, the risk of inflation 17 00:00:58,240 --> 00:01:01,920 Speaker 1: and higher rates. But at the same time you've had markets. Uh. 18 00:01:02,240 --> 00:01:05,319 Speaker 1: Markets have already seen a very sharp correction. SMP find 19 00:01:05,400 --> 00:01:08,840 Speaker 1: rate is down more than twenty For example, valuations are 20 00:01:08,880 --> 00:01:11,160 Speaker 1: now not as expensive as there were one year ago. 21 00:01:11,200 --> 00:01:15,679 Speaker 1: In fact, they are looking relatively cheap uh in in 22 00:01:15,800 --> 00:01:18,520 Speaker 1: relative terms, and you've got a pile of cash sitting 23 00:01:18,520 --> 00:01:19,880 Speaker 1: on the sidelines. If you look at you as money 24 00:01:19,920 --> 00:01:22,280 Speaker 1: market funds, you've got four point six trillion dollar sitting 25 00:01:22,280 --> 00:01:24,480 Speaker 1: on the sideline. So we have a very unusual situation 26 00:01:24,520 --> 00:01:27,000 Speaker 1: where you know, you've got a lot of cash, you've 27 00:01:27,000 --> 00:01:29,479 Speaker 1: got a healthy level of skepticism in the markets as 28 00:01:29,520 --> 00:01:32,320 Speaker 1: reflected by the cash level, and you've got valuations now 29 00:01:32,360 --> 00:01:34,600 Speaker 1: slightly more attractive. So I think it doesn't make sense 30 00:01:34,600 --> 00:01:37,640 Speaker 1: for investors to stay out of the markets completely. It 31 00:01:37,800 --> 00:01:40,000 Speaker 1: still makes sense for them to stay invested, but not 32 00:01:40,080 --> 00:01:42,960 Speaker 1: invested fully. Keep dry powder because the next six or 33 00:01:43,040 --> 00:01:45,560 Speaker 1: nine months is going to be a very tricky period 34 00:01:45,600 --> 00:01:48,480 Speaker 1: with the rising yields and interest rates and the way 35 00:01:48,480 --> 00:01:50,800 Speaker 1: the fat handles inflation. But you know, the pullbacks can 36 00:01:50,880 --> 00:01:55,040 Speaker 1: present opportunities to buy gradually, and with the thought of 37 00:01:55,080 --> 00:01:58,280 Speaker 1: what we're seeing in yields move, and particularly the stark 38 00:01:58,520 --> 00:02:00,920 Speaker 1: jump we've seen in the last couple of months. When 39 00:02:00,920 --> 00:02:03,240 Speaker 1: our thirty basis points from four percent, when do we 40 00:02:03,320 --> 00:02:07,360 Speaker 1: reach that and what does that mean for other risk assets? Well, 41 00:02:07,400 --> 00:02:09,040 Speaker 1: you know, it is not the best piece of news 42 00:02:09,040 --> 00:02:11,200 Speaker 1: for other risk assets. It takes away the shine from 43 00:02:11,240 --> 00:02:14,160 Speaker 1: equities for example, because you know, UH it reduces the 44 00:02:14,200 --> 00:02:16,760 Speaker 1: gap between dividend yields and you know ten your bond yields. 45 00:02:17,160 --> 00:02:20,120 Speaker 1: It reduces the UH. It results in you know, bond 46 00:02:20,160 --> 00:02:23,440 Speaker 1: prices coming down because of rising yields. It results in 47 00:02:23,480 --> 00:02:26,480 Speaker 1: goal prices losing it shine because goal offer zero yields. 48 00:02:26,480 --> 00:02:28,480 Speaker 1: So you know, it's a very tricky market. The rising 49 00:02:28,560 --> 00:02:31,800 Speaker 1: yields are going to pose a head wind for real assets. 50 00:02:31,800 --> 00:02:34,160 Speaker 1: So I agree with what that's at the beginning. You know, 51 00:02:34,360 --> 00:02:36,320 Speaker 1: you want to be light on risk assets. You don't 52 00:02:36,320 --> 00:02:39,080 Speaker 1: want to be too gung ho at this juncture. But 53 00:02:39,160 --> 00:02:40,880 Speaker 1: at the same time, you know, don't take your eyes 54 00:02:40,919 --> 00:02:43,640 Speaker 1: off the market because this rise in yields and you 55 00:02:43,680 --> 00:02:46,120 Speaker 1: know the inflation issue is going to result in pullbacks 56 00:02:46,120 --> 00:02:48,680 Speaker 1: in the market. UH, it is already resultable, and you've 57 00:02:48,720 --> 00:02:51,400 Speaker 1: got to create create opportunities for investors. So don't don't 58 00:02:51,480 --> 00:02:54,600 Speaker 1: focus on just the negatives. UH. Look at it as 59 00:02:54,680 --> 00:02:58,160 Speaker 1: a possibly an opportunity to buy gradually as well. So 60 00:02:58,200 --> 00:03:00,639 Speaker 1: away from the US market, I'm looking the hang sang 61 00:03:00,760 --> 00:03:02,520 Speaker 1: right now so far this year down by more than 62 00:03:03,440 --> 00:03:07,120 Speaker 1: are there um let's say opportunities and markets in your 63 00:03:07,200 --> 00:03:09,560 Speaker 1: neck of the woods. Let's say whether it's in Singapore 64 00:03:09,720 --> 00:03:11,880 Speaker 1: or in Hong Kong or even mainland China that you 65 00:03:11,880 --> 00:03:15,280 Speaker 1: would be interested in right now spot on that, you know, 66 00:03:15,320 --> 00:03:21,160 Speaker 1: because within our equities call, we are eventually neutral and Asia, 67 00:03:22,000 --> 00:03:25,960 Speaker 1: but we are overweight on China, Hong Kong and Singapore. 68 00:03:26,280 --> 00:03:28,480 Speaker 1: You know, the Chinese stock market has plunged in the 69 00:03:28,560 --> 00:03:30,640 Speaker 1: last one and a half years. I mean, we've had 70 00:03:30,680 --> 00:03:32,359 Speaker 1: so much of bad news in the last one and 71 00:03:32,360 --> 00:03:34,280 Speaker 1: a half years. That's built over in Hong Kong as well. 72 00:03:34,639 --> 00:03:36,200 Speaker 1: And as you said, you know, the Hong Kong market 73 00:03:36,240 --> 00:03:39,480 Speaker 1: year to it is already down two or thereabouts, you know, 74 00:03:39,560 --> 00:03:42,360 Speaker 1: and so valuations are now looking attractive. The problem is 75 00:03:42,560 --> 00:03:45,120 Speaker 1: we don't have a catlist. We don't have a caretlist 76 00:03:45,200 --> 00:03:48,200 Speaker 1: to regnite interest in the market. Because China has got 77 00:03:48,200 --> 00:03:50,640 Speaker 1: a zero COVID policy and I think that's that's a 78 00:03:50,640 --> 00:03:52,720 Speaker 1: big head win. We need to see that policy change 79 00:03:52,960 --> 00:03:55,600 Speaker 1: before investors, you know, turn more positive in China. But 80 00:03:55,640 --> 00:03:58,800 Speaker 1: if you're a medium to investor, hey, uh, you know, 81 00:03:58,920 --> 00:04:02,080 Speaker 1: value starting to emerge, uh for for the medium long term. 82 00:04:02,360 --> 00:04:04,240 Speaker 1: So we have had a twenty second day of a 83 00:04:04,320 --> 00:04:08,000 Speaker 1: stronger than expected U unfixed and the Bank of Philippines 84 00:04:08,040 --> 00:04:11,080 Speaker 1: now saying they have other measures to reduce effects volatility. 85 00:04:11,560 --> 00:04:14,120 Speaker 1: No sign that governments are willing to act in concert 86 00:04:14,200 --> 00:04:17,600 Speaker 1: to defend the very strong greenback. How does this kind 87 00:04:17,640 --> 00:04:20,679 Speaker 1: of just weigh into the pain that we could see 88 00:04:20,760 --> 00:04:24,920 Speaker 1: across Asian markets. Uh, it is a major hit wind 89 00:04:24,920 --> 00:04:27,320 Speaker 1: of the Asian markets. In fact, Asian markets, you know, 90 00:04:27,480 --> 00:04:30,440 Speaker 1: have been on the decline for almost six weeks. We 91 00:04:30,480 --> 00:04:33,560 Speaker 1: have six consecutive weeks of decline for Asian equity markets, 92 00:04:34,480 --> 00:04:37,280 Speaker 1: partly driven by you know, the resentiment, but driven by 93 00:04:37,279 --> 00:04:40,520 Speaker 1: the stronger dollar. And this is clearly headwind because you know, 94 00:04:40,720 --> 00:04:43,640 Speaker 1: Asian currencies are weakening. It is forcing the central banks 95 00:04:43,640 --> 00:04:46,040 Speaker 1: to think about how they can defend the currency, is 96 00:04:46,080 --> 00:04:49,200 Speaker 1: depleting reserves to some extent, It's forcing central branks to 97 00:04:49,240 --> 00:04:51,840 Speaker 1: increase inter streits to defend the currencies and also fight 98 00:04:52,160 --> 00:04:55,359 Speaker 1: important inflation. So it is a major head wind. But 99 00:04:55,520 --> 00:04:57,200 Speaker 1: Asia is today in a much better ship than it 100 00:04:57,320 --> 00:05:01,800 Speaker 1: was back when we have the Asian financial crisis. But 101 00:05:01,960 --> 00:05:03,960 Speaker 1: you know, if this goes on much longer than it 102 00:05:04,000 --> 00:05:06,760 Speaker 1: will create bigger head winds for Asia. And a risk 103 00:05:06,760 --> 00:05:08,760 Speaker 1: that investors in the bed in their minds. Yeah. I 104 00:05:08,760 --> 00:05:11,480 Speaker 1: mentioned South Korea earlier. It looks as though the Korean 105 00:05:11,520 --> 00:05:15,400 Speaker 1: one broke through a key psychological level of four against 106 00:05:15,400 --> 00:05:17,680 Speaker 1: the green bag. The b ok is has got a 107 00:05:17,720 --> 00:05:20,800 Speaker 1: real dilemma on its hands because it's not only the 108 00:05:20,839 --> 00:05:24,279 Speaker 1: fact that because of high inflation in the US and 109 00:05:24,360 --> 00:05:26,200 Speaker 1: you have to kind of keep pace with what the 110 00:05:26,240 --> 00:05:29,000 Speaker 1: FETE is doing. There is so much leverage in the 111 00:05:29,040 --> 00:05:33,080 Speaker 1: economy in South Korea, particularly in the household arena and 112 00:05:33,320 --> 00:05:35,520 Speaker 1: the real estate market there, which accounts I think for 113 00:05:35,560 --> 00:05:38,240 Speaker 1: the largest share of personal assets. So I think the 114 00:05:38,279 --> 00:05:42,320 Speaker 1: b Oka in particular has a very interesting needle to threat, 115 00:05:42,320 --> 00:05:45,880 Speaker 1: wouldn't you agree? Uh? Sounds like it, I mean from 116 00:05:45,920 --> 00:05:48,600 Speaker 1: what you just said that, I mean essentially, there, you know, 117 00:05:48,720 --> 00:05:52,320 Speaker 1: multiple problems in South Korea. Of course, adding to all that, 118 00:05:52,640 --> 00:05:56,039 Speaker 1: the chip exports in South koreavels, are they gonna plane? 119 00:05:56,279 --> 00:05:59,560 Speaker 1: I think the August numbers chip shot twenty four point 120 00:05:59,600 --> 00:06:02,360 Speaker 1: seven per and decline. H So, you know, the South 121 00:06:02,440 --> 00:06:05,800 Speaker 1: Korean economy is facing head winds, and maybe more so 122 00:06:05,920 --> 00:06:07,680 Speaker 1: than some of the Asian economies. But you know, I 123 00:06:07,680 --> 00:06:10,839 Speaker 1: think the rest of Asia as well is facing issues. 124 00:06:10,880 --> 00:06:13,480 Speaker 1: You know, maybe if not so much leverage. Property prices 125 00:06:13,480 --> 00:06:16,040 Speaker 1: in many parts of Asia also you know, increasing significantly, 126 00:06:16,040 --> 00:06:18,560 Speaker 1: and it rates continued to hit higher than you know. Uh, 127 00:06:18,880 --> 00:06:22,039 Speaker 1: property prices world face hedwins, could pull back, could hurt 128 00:06:22,360 --> 00:06:26,120 Speaker 1: household balance sheets and consumer demand. So yes, you're right. 129 00:06:26,120 --> 00:06:29,279 Speaker 1: I mean the the the fat rate heights and the 130 00:06:29,320 --> 00:06:32,680 Speaker 1: strong dollar, you know, creating multiple problems not just for 131 00:06:32,720 --> 00:06:34,839 Speaker 1: South Korea but also other parts of Asia as well. 132 00:06:35,880 --> 00:06:39,919 Speaker 1: Singapore expecting to get inflation figures today, I mean inflation 133 00:06:40,240 --> 00:06:42,480 Speaker 1: in Asia, as we know, not quite as hot as 134 00:06:42,520 --> 00:06:44,240 Speaker 1: what we're seeing in the US. But what sort of 135 00:06:44,240 --> 00:06:46,799 Speaker 1: further action are you expecting to see from central banks 136 00:06:46,800 --> 00:06:51,280 Speaker 1: when we had moves yesterday in the Asian region as well. Well, 137 00:06:51,320 --> 00:06:53,440 Speaker 1: you know, clearly, I think the Singapore Central Bank and 138 00:06:53,480 --> 00:06:54,960 Speaker 1: you know other central banks and Asia world to be 139 00:06:55,000 --> 00:06:57,479 Speaker 1: keeping a very close iron the inflation and what the 140 00:06:57,520 --> 00:07:00,000 Speaker 1: fat is going to do. Uh. The Singapore Central Bank 141 00:07:00,040 --> 00:07:03,320 Speaker 1: has tightened nary policy quite significantly. UH, And I think 142 00:07:03,320 --> 00:07:05,880 Speaker 1: it's necessary because you know, Singapore doesn't ever interest rate policy. 143 00:07:06,080 --> 00:07:08,480 Speaker 1: We have an exchange rate policy, which is very unusual 144 00:07:08,720 --> 00:07:10,960 Speaker 1: compared to other Asian countries, compared to many other countries 145 00:07:10,960 --> 00:07:13,320 Speaker 1: around the world. So we manage inflation by you know, 146 00:07:13,720 --> 00:07:16,360 Speaker 1: keeping the dollars strong, the Singapore dollars strong and on 147 00:07:16,360 --> 00:07:18,840 Speaker 1: a relative basis, and Singapore always been stronger compared with 148 00:07:19,000 --> 00:07:21,320 Speaker 1: Asian pers and so far, I think the MBS is 149 00:07:21,360 --> 00:07:24,400 Speaker 1: doing a good job. You know, yes, inflation is an issue, 150 00:07:24,440 --> 00:07:27,840 Speaker 1: but I think they're trying to check important inflation to 151 00:07:27,960 --> 00:07:30,760 Speaker 1: the stronger dollar. And I won't be surprised if inflation 152 00:07:30,760 --> 00:07:33,640 Speaker 1: continues a post problem that the ms will intervene further 153 00:07:33,680 --> 00:07:36,080 Speaker 1: and you know, tightened policy even further. So many the 154 00:07:36,080 --> 00:07:39,320 Speaker 1: economies in the APEC region are reliant on a strong 155 00:07:39,440 --> 00:07:43,440 Speaker 1: China economy. Yesterday we had a Goldman Sachs downgrading its 156 00:07:43,520 --> 00:07:47,080 Speaker 1: estimate for GDP growth. Today no Mura kind of joining 157 00:07:47,480 --> 00:07:50,280 Speaker 1: in and doing much the same. Do you have a 158 00:07:50,280 --> 00:07:55,200 Speaker 1: sense of how well the China economy is going to perform? Well, 159 00:07:55,240 --> 00:07:57,400 Speaker 1: you know that. I mean, we've talked about it earlier. 160 00:07:57,440 --> 00:07:59,640 Speaker 1: I think a critical part of the whole equation is 161 00:07:59,680 --> 00:08:02,840 Speaker 1: the z ROO COVID policy. And as you mentioned earlier on, 162 00:08:03,320 --> 00:08:05,960 Speaker 1: you know, some people in the market expect China to 163 00:08:06,040 --> 00:08:09,000 Speaker 1: ease up and zero COVID policy post October sixteen, which 164 00:08:09,000 --> 00:08:12,000 Speaker 1: is when the NPC takes place in China, and UH, 165 00:08:12,240 --> 00:08:14,880 Speaker 1: let's hope that that happens. I mean, you know, China 166 00:08:14,960 --> 00:08:17,440 Speaker 1: needs to ease up and zero COVID open up its 167 00:08:17,440 --> 00:08:21,080 Speaker 1: doors for the economy to really get back on its feet. 168 00:08:21,280 --> 00:08:23,560 Speaker 1: Without easing of the zero COVID policy, it's hard to 169 00:08:23,600 --> 00:08:26,120 Speaker 1: see the Chinese economy bounce back in a big way. 170 00:08:27,200 --> 00:08:30,440 Speaker 1: Are we paying enough attention to what's happening in Europe 171 00:08:30,560 --> 00:08:34,199 Speaker 1: and these the energy crosses, the war and Ukraine. I mean, 172 00:08:34,200 --> 00:08:37,640 Speaker 1: that's something that the FED can't control indeed, you know, 173 00:08:37,760 --> 00:08:40,880 Speaker 1: and which is why you know asset allocation called UH. 174 00:08:41,040 --> 00:08:44,920 Speaker 1: Europe is an UNDERWIT. We've got neutral and Asian equities neutral, 175 00:08:44,960 --> 00:08:47,719 Speaker 1: and US aquities neutral and Japanese equities, but the only 176 00:08:47,800 --> 00:08:50,600 Speaker 1: UNDERWIT we have in the regional aquity space is Europe. 177 00:08:50,600 --> 00:08:53,760 Speaker 1: Because we are concerned about the energy crisis in Europe 178 00:08:53,800 --> 00:08:55,800 Speaker 1: and it's going to get worse. I mean with the 179 00:08:55,840 --> 00:08:59,040 Speaker 1: onset of winter and what's happening in the in Russia 180 00:08:59,120 --> 00:09:01,360 Speaker 1: right now, with the deployment of you know, reserve troops 181 00:09:01,480 --> 00:09:05,520 Speaker 1: and the escalation of political tension. Uh, the energy crisis 182 00:09:05,600 --> 00:09:07,240 Speaker 1: is something that we really have to worry about, and 183 00:09:07,280 --> 00:09:08,800 Speaker 1: I'm sure the Feed is keeping an eye on there 184 00:09:08,840 --> 00:09:11,240 Speaker 1: as well. So far it is not impacted the US 185 00:09:11,240 --> 00:09:13,520 Speaker 1: economy in a big way, but if it does, then 186 00:09:13,559 --> 00:09:18,480 Speaker 1: the feed will maybe ease up on its aggressive retoric. Alright, 187 00:09:18,520 --> 00:09:20,200 Speaker 1: that's it. Always a pleasure, have a great weekend. Invest 188 00:09:20,200 --> 00:09:23,520 Speaker 1: you man and its executive director Investment Strategy at OCBC 189 00:09:23,720 --> 00:09:26,959 Speaker 1: Bank Wealth Management with us on the line from Singapore.