1 00:00:00,080 --> 00:00:02,800 Speaker 1: Let's get to our guests. Preshant Bayani is with US 2 00:00:02,840 --> 00:00:06,119 Speaker 1: Asia c i O at b NP Pariba Wealth Management 3 00:00:06,320 --> 00:00:09,639 Speaker 1: on the line from Singapore, Pressant, thanks for being with us. 4 00:00:09,960 --> 00:00:12,080 Speaker 1: Do you think we're gonna head into recession in the 5 00:00:12,080 --> 00:00:16,439 Speaker 1: new year? Seems like an easy call to make. Yes, 6 00:00:16,560 --> 00:00:19,239 Speaker 1: we're in a moderate recession camp for next year. So 7 00:00:19,320 --> 00:00:22,120 Speaker 1: for the US likely between Q two to Q four 8 00:00:22,200 --> 00:00:25,280 Speaker 1: next year. Our full year forecast is, you know, roughly 9 00:00:25,320 --> 00:00:27,200 Speaker 1: minus point one pc g d P And you can 10 00:00:27,560 --> 00:00:29,760 Speaker 1: be a little bit overly precise, but the bottom line 11 00:00:29,760 --> 00:00:32,360 Speaker 1: is we're in a moderate recession camp for next year 12 00:00:32,360 --> 00:00:35,479 Speaker 1: for the US. And is that going to be the 13 00:00:35,520 --> 00:00:39,400 Speaker 1: good news? Because it's going to still be severe enough 14 00:00:40,000 --> 00:00:43,840 Speaker 1: to bring down inflation. We want to see inflation come down. 15 00:00:43,880 --> 00:00:46,400 Speaker 1: The funds rate get up. Funds rate many say, has 16 00:00:46,440 --> 00:00:49,879 Speaker 1: to get above the inflation rate two, you know, to 17 00:00:49,960 --> 00:00:54,760 Speaker 1: bring bring this surge down. Yes, that's correct, And we 18 00:00:54,880 --> 00:00:57,120 Speaker 1: were forecasting inflation next year to the US around four 19 00:00:57,120 --> 00:00:59,720 Speaker 1: point four and we get closer to the FED target 20 00:00:59,760 --> 00:01:02,639 Speaker 1: to in four percent by four Now, if you think 21 00:01:02,640 --> 00:01:04,920 Speaker 1: of over fed funds, are forecast for FED funds is 22 00:01:05,160 --> 00:01:08,560 Speaker 1: closer to five percent. After the January meetings, a two 23 00:01:08,640 --> 00:01:11,080 Speaker 1: fifty basis point increases, So then the FED funds rate, 24 00:01:11,160 --> 00:01:13,520 Speaker 1: of course, will be above what we think full year 25 00:01:13,520 --> 00:01:16,000 Speaker 1: inflation will be in the US. The key is rate 26 00:01:16,040 --> 00:01:19,400 Speaker 1: of change. We think headline inflation is starting to peak. 27 00:01:19,560 --> 00:01:24,280 Speaker 1: Lumber prices down, sev use car prices down. We're also 28 00:01:24,319 --> 00:01:28,200 Speaker 1: seeing inventories at the big retailers are much higher, so 29 00:01:28,280 --> 00:01:30,959 Speaker 1: goods pricing is accelerating, I mean on the downside. But 30 00:01:31,000 --> 00:01:33,360 Speaker 1: of course stick gear as wages and rents, they act 31 00:01:33,440 --> 00:01:35,320 Speaker 1: with the lag and that will take longer. So does 32 00:01:35,360 --> 00:01:37,440 Speaker 1: that necessarily mean that we if we get to that 33 00:01:37,800 --> 00:01:40,240 Speaker 1: five percent terminal rate, that we're going to be there 34 00:01:40,319 --> 00:01:42,480 Speaker 1: for for quite some time before we can even have 35 00:01:42,560 --> 00:01:47,680 Speaker 1: the discussion around the Fed cutting rates. Yes, that's correct 36 00:01:47,720 --> 00:01:50,320 Speaker 1: unless we have a very deep recession. We think they're 37 00:01:50,320 --> 00:01:53,320 Speaker 1: on hold. Next year. Earliest would be you know, if 38 00:01:53,320 --> 00:01:56,160 Speaker 1: if we can more than we expect of four fourth 39 00:01:56,240 --> 00:01:58,680 Speaker 1: quarter rate cuts, but on our forecast for a mild recession, 40 00:01:58,720 --> 00:02:00,960 Speaker 1: they would not be cutting next year at all in 41 00:02:01,080 --> 00:02:02,560 Speaker 1: terms of FET funds, right, and I think they'll be 42 00:02:02,560 --> 00:02:06,600 Speaker 1: cautious to make sure the wage inflation side save control. 43 00:02:07,160 --> 00:02:10,680 Speaker 1: What does that mean for stocks because presumably, well, gosh, 44 00:02:10,720 --> 00:02:12,639 Speaker 1: if they're not going to bring rates down and uh 45 00:02:12,680 --> 00:02:16,679 Speaker 1: and the uh it's gonna be companies are still gonna 46 00:02:16,680 --> 00:02:19,760 Speaker 1: have higher costs right for and if wages don't come 47 00:02:19,760 --> 00:02:21,799 Speaker 1: down right away, they're going to pay their workers more, 48 00:02:22,040 --> 00:02:24,840 Speaker 1: you know, or our our investors going to kind of 49 00:02:24,880 --> 00:02:26,600 Speaker 1: get to the point where they say, Okay, this is 50 00:02:26,600 --> 00:02:29,320 Speaker 1: a new this is a new economy. It's different now. 51 00:02:29,360 --> 00:02:31,480 Speaker 1: Inflation is much higher, the fet is not going to 52 00:02:31,919 --> 00:02:33,840 Speaker 1: do anything with rates, and so we're gonna find the 53 00:02:33,840 --> 00:02:35,760 Speaker 1: companies that can still make good earnings. Is that going 54 00:02:35,800 --> 00:02:39,680 Speaker 1: the way people do it? Yeah, stock selection and sect 55 00:02:39,720 --> 00:02:41,960 Speaker 1: section will be key. I think when you think about 56 00:02:41,960 --> 00:02:44,680 Speaker 1: nominal earnings have been flattered by the headline inflation of course, 57 00:02:45,040 --> 00:02:46,880 Speaker 1: you know, like you're speaking about, and I think there 58 00:02:46,960 --> 00:02:49,519 Speaker 1: is earnings risks. As we know for next year US 59 00:02:49,560 --> 00:02:52,160 Speaker 1: earnings growth still consensus is plus six plus seven percent 60 00:02:52,240 --> 00:02:54,760 Speaker 1: for next year. The market is probably a little bit 61 00:02:54,800 --> 00:02:57,360 Speaker 1: below then we know analysts are over optimistic, so that 62 00:02:57,400 --> 00:02:59,640 Speaker 1: doesn't look correct, but nominal earnings are a bit higher. 63 00:03:00,040 --> 00:03:02,960 Speaker 1: Earnings are in nominal terms, But the stock sulation will 64 00:03:02,960 --> 00:03:05,040 Speaker 1: be key, so which companies have pricing power we've been 65 00:03:05,080 --> 00:03:08,040 Speaker 1: focusing on healthcare, We've been focusing on financials and benefit 66 00:03:08,080 --> 00:03:10,960 Speaker 1: from higher rate but different different parts of the sector. 67 00:03:11,040 --> 00:03:14,360 Speaker 1: Also quality companies energy. The thing. The thing is is 68 00:03:14,400 --> 00:03:18,200 Speaker 1: that we could see some disappointments in first quarter earnings. 69 00:03:18,320 --> 00:03:21,240 Speaker 1: We think non US equities are more favorable at this 70 00:03:21,280 --> 00:03:25,440 Speaker 1: point in US equities were neutral US equities from that perspective. 71 00:03:25,560 --> 00:03:28,079 Speaker 1: So it's really about stock selection and sector selection rather 72 00:03:28,120 --> 00:03:30,200 Speaker 1: than the beginning of a new bullmarket in the US 73 00:03:30,320 --> 00:03:33,840 Speaker 1: and country selection too. If you're talking to me about 74 00:03:33,919 --> 00:03:37,000 Speaker 1: potential upside, are there jurisdictions in your neck of the woods? 75 00:03:37,040 --> 00:03:40,200 Speaker 1: I'm thinking a pack region that you think we should 76 00:03:40,240 --> 00:03:42,400 Speaker 1: look at before we get into the weeds and start 77 00:03:42,400 --> 00:03:45,800 Speaker 1: to identify companies with that level of potential that you described. 78 00:03:45,840 --> 00:03:48,800 Speaker 1: I'm wondering whether or not we have to identify certain 79 00:03:48,800 --> 00:03:51,800 Speaker 1: markets that you want to be exposed to because perhaps 80 00:03:51,800 --> 00:03:54,800 Speaker 1: their connection with China and the reopening trade or whatever. 81 00:03:54,880 --> 00:03:57,320 Speaker 1: I mean. Are you looking at Taiwan, Are you looking 82 00:03:57,320 --> 00:03:59,960 Speaker 1: at South Asia? Are you looking at North Asia? Japan 83 00:04:00,040 --> 00:04:04,800 Speaker 1: and Korea? What is it? Yeah, for APEC region, we've 84 00:04:04,840 --> 00:04:08,080 Speaker 1: been overweight Southeast Asia because they reopened this year with 85 00:04:08,120 --> 00:04:10,800 Speaker 1: a lag compared to US and Europe. So if you look, 86 00:04:10,920 --> 00:04:13,040 Speaker 1: you're not like Singapore. Indernies of these kind of markets 87 00:04:13,240 --> 00:04:17,280 Speaker 1: have outperformed this year flat up for the We're increasingly 88 00:04:17,320 --> 00:04:19,359 Speaker 1: and we've been getting more positive on China for the 89 00:04:19,360 --> 00:04:21,279 Speaker 1: first time on it from a global basis since the 90 00:04:21,279 --> 00:04:25,240 Speaker 1: Party Congress. Why two reasons. We priced in zero COVID 91 00:04:25,320 --> 00:04:29,040 Speaker 1: through twenty through all of three after the Party Congress. 92 00:04:29,080 --> 00:04:32,040 Speaker 1: And second, the property market, Um, while it's not bottom, 93 00:04:32,080 --> 00:04:34,000 Speaker 1: we think it will have a bottom in the coming 94 00:04:34,040 --> 00:04:36,960 Speaker 1: quarters because they continue to do stimulus, reservo rate cuts 95 00:04:37,000 --> 00:04:40,360 Speaker 1: and various other financiing vehicles to help local developers. And 96 00:04:40,400 --> 00:04:43,800 Speaker 1: of course since the Party Congress we have seen a 97 00:04:43,880 --> 00:04:46,360 Speaker 1: loosening of the COVID restrictions. In the last two weeks, 98 00:04:46,360 --> 00:04:50,200 Speaker 1: the tone has changed considerably, whether it's on uh you know, 99 00:04:50,400 --> 00:04:53,080 Speaker 1: more of a learning to live with it mentality. Of course, 100 00:04:53,080 --> 00:04:55,080 Speaker 1: we've got to get through the winter in China. We 101 00:04:55,160 --> 00:04:58,680 Speaker 1: know the virus is more transmissible, natural immunities lower. But 102 00:04:58,839 --> 00:05:00,920 Speaker 1: once we get through that, we up through Chinese New Year, 103 00:05:00,920 --> 00:05:02,520 Speaker 1: and we had into Q two Q three we could 104 00:05:02,520 --> 00:05:05,240 Speaker 1: see a gradual but not big bang reopening, but the 105 00:05:05,279 --> 00:05:07,120 Speaker 1: stocks were not priced for that they were priced in 106 00:05:07,160 --> 00:05:10,200 Speaker 1: for for a worse outcome, and that means China is 107 00:05:10,200 --> 00:05:11,560 Speaker 1: one of the few economies in the world will have 108 00:05:11,680 --> 00:05:14,919 Speaker 1: faster GDP growth next year than this year after obviously 109 00:05:15,279 --> 00:05:18,159 Speaker 1: a very big slow down. So how much more room 110 00:05:18,240 --> 00:05:21,839 Speaker 1: to run do you think equities have in China? Is it? 111 00:05:21,960 --> 00:05:26,200 Speaker 1: Is it? Another five? Is another? What? How? How much 112 00:05:26,240 --> 00:05:27,760 Speaker 1: is this really going to pick up steam once the 113 00:05:27,800 --> 00:05:30,039 Speaker 1: economy is more open and we know people in China, 114 00:05:30,279 --> 00:05:32,880 Speaker 1: we assume anyway they're gonna out and spend like crazy 115 00:05:33,000 --> 00:05:38,040 Speaker 1: if they can, right, Yes, yes, there is significant pent 116 00:05:38,120 --> 00:05:40,279 Speaker 1: up demand, of course, similar to what we saw of course, 117 00:05:40,600 --> 00:05:43,160 Speaker 1: you know in the US a year ago, starting a 118 00:05:43,240 --> 00:05:45,120 Speaker 1: year ago. I mean we think in the short term 119 00:05:45,160 --> 00:05:48,039 Speaker 1: always we've had a noticeable bounce and we do have 120 00:05:48,120 --> 00:05:50,000 Speaker 1: to get through that winter period. So we need to 121 00:05:50,040 --> 00:05:53,000 Speaker 1: consolidate these games. If we're correct on the popper market 122 00:05:53,040 --> 00:05:55,640 Speaker 1: bottom and a graduate in next year, there is for 123 00:05:55,760 --> 00:05:59,240 Speaker 1: next year, we think good upside um you know ten 124 00:05:59,320 --> 00:06:03,680 Speaker 1: to in China equities, Uh, when we think were valuation 125 00:06:03,800 --> 00:06:06,560 Speaker 1: is now, I think it's really about those you know, 126 00:06:06,920 --> 00:06:09,120 Speaker 1: placing where you're gonna place your bets, you know, I 127 00:06:09,120 --> 00:06:12,120 Speaker 1: think China is one place uh that does stand out 128 00:06:12,160 --> 00:06:13,919 Speaker 1: in the next year four equity, but I think the 129 00:06:13,920 --> 00:06:16,359 Speaker 1: sector calls like we spoke about earlier also important on 130 00:06:16,360 --> 00:06:20,000 Speaker 1: a global basis, Are we undermine I'm sorry for Shan, 131 00:06:20,080 --> 00:06:23,080 Speaker 1: but I'm curious as to whether or not we're underestimating 132 00:06:23,520 --> 00:06:26,800 Speaker 1: the risk of some kind of geopolitical problem. I mean, 133 00:06:26,839 --> 00:06:30,560 Speaker 1: whether it's war in Ukraine. Here's putin today, UH doing 134 00:06:30,600 --> 00:06:32,839 Speaker 1: a little bit of a kind of a mild thread 135 00:06:32,880 --> 00:06:35,440 Speaker 1: at the use of nuclear weapons of maybe a cota 136 00:06:35,760 --> 00:06:38,760 Speaker 1: are created, a haven bid in US treasuries. And then 137 00:06:39,040 --> 00:06:41,080 Speaker 1: we know now that the US is set to pass 138 00:06:41,200 --> 00:06:45,560 Speaker 1: legislation revamping policy towards Taiwan and restricting government use of 139 00:06:45,640 --> 00:06:49,520 Speaker 1: Chinese semiconductors, which just underscores this tension that's already there 140 00:06:49,560 --> 00:06:54,160 Speaker 1: between Washington and Beijing were semiconductors are involved. Are we 141 00:06:54,279 --> 00:06:58,520 Speaker 1: underestimating the potential for a flare up on the geopolitical 142 00:06:58,560 --> 00:07:04,160 Speaker 1: front tackling those two things. Firstly, the de globalization trades 143 00:07:04,200 --> 00:07:07,119 Speaker 1: are underway in terms of long term moving supply chains, 144 00:07:07,160 --> 00:07:09,960 Speaker 1: you know, like you're speaking about in terms of semiconductors, 145 00:07:10,040 --> 00:07:13,160 Speaker 1: So that's clearly UH going to continue. You know, we 146 00:07:13,200 --> 00:07:15,560 Speaker 1: saw obviously the plants being announced in the US this week, 147 00:07:15,760 --> 00:07:18,200 Speaker 1: Japan as well, you know. So we're seeing a number 148 00:07:18,240 --> 00:07:20,960 Speaker 1: of countries diverse by supply chain. So that's a longer 149 00:07:21,040 --> 00:07:23,720 Speaker 1: term story, and that means moderately higher inflation at the 150 00:07:23,760 --> 00:07:26,560 Speaker 1: margin and medium term. With regards to Ukraine at a 151 00:07:26,640 --> 00:07:28,680 Speaker 1: very tough call of course, in terms of calling how 152 00:07:28,680 --> 00:07:31,480 Speaker 1: that's going to play out. Clearly if if this if 153 00:07:31,480 --> 00:07:35,440 Speaker 1: this war intensifies outside Ukraine's borders, then the market would 154 00:07:35,480 --> 00:07:40,760 Speaker 1: have a correction. So in terms of the China trade, Uh, 155 00:07:41,080 --> 00:07:43,920 Speaker 1: what about the countries around China? What about all the 156 00:07:43,960 --> 00:07:46,960 Speaker 1: Asian companies that are in countries I should say that 157 00:07:47,000 --> 00:07:49,520 Speaker 1: are going to benefit from even if it takes a 158 00:07:49,560 --> 00:07:52,640 Speaker 1: few months. Is this return to growth at a higher 159 00:07:52,680 --> 00:07:57,360 Speaker 1: level in China? Yeah, North Asia, which has been heavily 160 00:07:57,400 --> 00:08:00,440 Speaker 1: penalized along with China and also has been more closed 161 00:08:00,600 --> 00:08:03,960 Speaker 1: from a COVID perspective standard benefits. So countries like Korea 162 00:08:04,000 --> 00:08:07,480 Speaker 1: of course, which are big exporters both on cyclical side, 163 00:08:07,480 --> 00:08:10,920 Speaker 1: but also even domestic consumption. Uh, and certain sectors of 164 00:08:10,920 --> 00:08:14,000 Speaker 1: course also in Taiwan and other countries, so yes, and 165 00:08:14,320 --> 00:08:17,880 Speaker 1: and even also sectors in Japan would benefit from a 166 00:08:17,920 --> 00:08:22,200 Speaker 1: graduate opening China reopening given the fact their trade relationship 167 00:08:22,240 --> 00:08:27,000 Speaker 1: and the supply chain integration with China. All right, and 168 00:08:27,120 --> 00:08:29,280 Speaker 1: uh I guess what's my final question? Where's the funds 169 00:08:29,320 --> 00:08:31,240 Speaker 1: rate going to be at the end of the next year. 170 00:08:33,240 --> 00:08:35,560 Speaker 1: You know, our forecast is they go to five percent 171 00:08:35,600 --> 00:08:38,560 Speaker 1: and on hold for for next year. So we would 172 00:08:38,559 --> 00:08:41,280 Speaker 1: still say at five percent by the end of next 173 00:08:41,360 --> 00:08:43,800 Speaker 1: year at this point, and where's the where's the ten 174 00:08:43,880 --> 00:08:45,079 Speaker 1: year not going to be at the end of the year, 175 00:08:45,080 --> 00:08:48,120 Speaker 1: And you've got ten seconds to tell me at three 176 00:08:48,160 --> 00:08:51,319 Speaker 1: point five percent? Okay, okay, not too much more of 177 00:08:51,320 --> 00:08:54,600 Speaker 1: a rally then, all right. For Sean Yehi, it's always 178 00:08:54,600 --> 00:08:56,440 Speaker 1: great to talk with you. Thank you so much. He's 179 00:08:56,559 --> 00:09:01,119 Speaker 1: Asia Chief Investment Officer at BMP Paraba Wealth Management.