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Speaker 1: Louis law Is our guest for this half hour, director

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Speaker 1: of the investments group at Brandis Investment Partners. So a

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Speaker 1: lot of a downward push today. We had strong commentary

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Speaker 1: again from FED officials, and the earnings not looking so good.

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Speaker 1: It's pretty tough to be positive here, Lewis, how are

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Speaker 1: you thinking through it? Yeah? I think the markets are

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Speaker 1: in for a difficult time in the next six months.

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Speaker 1: I think the FED is going up against the strength

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Speaker 1: of the US labor market and the strength of the

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Speaker 1: U S consumer, and at some point one of these

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Speaker 1: things is going to crack um. And so until we

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Speaker 1: see a pause in the FED, I think it's difficult

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Speaker 1: to be constructive, except maybe for defensive sectors like healthcare.

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Speaker 1: It's quite something that it's when you know, you had

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Speaker 1: the Lauretta messed up just talking in saying that she

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Speaker 1: would carry on increasing the cost of borrowing hiking rates

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Speaker 1: even if the US economy was in a recession. You know,

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Speaker 1: the thing is how much pain are they really willing

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Speaker 1: to tolerate? You know? I think you might see the

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Speaker 1: unemployment rate go up from three percent to maybe around

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Speaker 1: five which is a pretty big increase in a short

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Speaker 1: amount of time. I mean, you've seen mortgage rates go

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Speaker 1: to six to seven percent, which is something that you

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Speaker 1: know has rarely been seen. And so I think the

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Speaker 1: unfortunately a lot of the global central banks are leaning

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Speaker 1: on the inflation fight and less on supporting the economy

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Speaker 1: because they think they have room. But until we get

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Speaker 1: to that point of weakness, I don't think the central

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Speaker 1: banks are going to blink. But again, it just depends

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Speaker 1: on how far, how fast we get to that point

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Speaker 1: of weakness. What do you make of Jim Bullard's comments

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Speaker 1: about quote the market's getting the message? Is the Fed

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Speaker 1: openly targeting markets? Um? You know, there's been a pretty

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Speaker 1: big adjustment in expectations in the last one or two

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Speaker 1: weeks about how long inflation is going to be. Um.

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Speaker 1: I think right now expectations are are inflation might not

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Speaker 1: slow down until the previous pactation ise, and the markets

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Speaker 1: were expecting sometime in twenty three that the FED might

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Speaker 1: start to reduce rates, but it might not be until.

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Speaker 1: So I think that adjustment that Jim is talking about

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Speaker 1: is has been happening pretty quickly in the last week. Okay, Well,

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Speaker 1: you know, with all that in mind, you know what

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Speaker 1: happens next. I mean, where are we in in the

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Speaker 1: whole cycle, if you will, Yeah, I think we may

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Speaker 1: be in the early innings. And the reason why I

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Speaker 1: say that is because you know, we're not seeing enough

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Speaker 1: of a quantum of analysts downgrades, especially on SMP five

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Speaker 1: founder earnings. I think there's still some growth from this

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Speaker 1: year to next year. We're seeing some analysts cut estimates,

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Speaker 1: but not as much as what a recession might imply. Right, So, um,

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Speaker 1: I think until you see that, they may be more

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Speaker 1: downside for US equities. Yeah. When you hear Lauretta Mesters

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Speaker 1: say that real interest rates have to be in positive

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Speaker 1: territory and and held for a time, you know that's

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Speaker 1: very bad or very tough for risk assets. Yeah, I

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Speaker 1: would agree with that, because if the expectation is that

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Speaker 1: even in four inflation comes down to three and a

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Speaker 1: half to four and you have the fat funds really

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Speaker 1: at four point you know, seven five, that's only three

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Speaker 1: quarters of a percent of really interest rates, and usually

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Speaker 1: that amount is about two to three percent of real

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Speaker 1: interest rates in most markets, including the US, where we

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Speaker 1: used to be um from a historical standpoint, So we're

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Speaker 1: quite far from that very positive real rate scenario that

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Speaker 1: has been discussed. I thank you very much indeed last

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Speaker 1: for sticking around with us. Let's have a look at

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Speaker 1: what we are seeing in this part of the world

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Speaker 1: in terms of your equity strategy. You know, what are

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Speaker 1: you looking at in terms of perhaps regionally as well

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Speaker 1: as some of the industry groups. Yeah, sure, so, I

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Speaker 1: think in terms of regions and countries where we see

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Speaker 1: more resilience and less likelihood of a recession with he

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Speaker 1: sawtheast Asia that is still expected to be benefiting from

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Speaker 1: reopening after covid um and then one bright spot maybe

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Speaker 1: the only strong growth market left in Asia is India. Um.

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Speaker 1: So those are the areas where we think there is opportunity.

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Speaker 1: But we will also caution against being too negative against

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Speaker 1: China because historically after the Party Congress um, the government

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Speaker 1: has always focused refocused back on economic growth. M Is

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Speaker 1: it too early to look for bottoms in some sectors?

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Speaker 1: I know you mentioned China Internet could be looking reasonable. Uh. Yeah.

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Speaker 1: We we think maybe a bottom has been reached because

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Speaker 1: if you look at sentiment has been depressed by delisting fears. Um.

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Speaker 1: But we don't think China would have allowed US accounting

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Speaker 1: inspectors to come that far if they didn't want to

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Speaker 1: strike a deal UM, so most likely they remain listed,

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Speaker 1: and then if you have an economic and consumption rebound

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Speaker 1: into next year, maybe some COVID restrictions lifting, it could

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Speaker 1: be a pretty good rebound year for China Internet for

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Speaker 1: next year. The thing is, you always seem to have

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Speaker 1: this regulatory overhang over parts of the market that don't

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Speaker 1: you lose. And the thing is, you know, this is

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Speaker 1: an administration which really has turned its back on the

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Speaker 1: private sector in many industry groups. This is the overhanging surely, yes, UM,

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Speaker 1: And I think a lot of it had to do

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Speaker 1: with political risks and challengers coming from the private sector

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Speaker 1: challenging the party ahead of the twentie Party Congress. But

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Speaker 1: I think once that is over, then the political risk

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Speaker 1: of UM supporting the private sector goes away, and then

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Speaker 1: the focus could shift back to the economy as it

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Speaker 1: has been historically. But I agree with you, Richard, I

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Speaker 1: mean that this regulatory phase has gone on much longer

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Speaker 1: and much deeper than any one of us have expected. Yeah,

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Speaker 1: it's been good eighteen months or so. You know this

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Speaker 1: this particular party congress obviously leadership and politics, so we'll

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Speaker 1: we'll take center stage perhaps a little over the economy.

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Speaker 1: But you say that you do expect pro economic growth

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Speaker 1: mindset for next year, Well, we have to wait till March,

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Speaker 1: or might we get some signs of that out of

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Speaker 1: this congress. You know, it was a good sign that

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Speaker 1: they brought forward the Party Congress date to October sixteen,

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Speaker 1: which was the earliest possible date, and so I think

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Speaker 1: they want to get some of the political appointments out

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Speaker 1: of the way. Um. But I think the reason, one

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Speaker 1: of the reasons that we might have to wait until

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Speaker 1: next March is because if there's a domestic mr and

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Speaker 1: a vaccine that gets rolled out in November or December

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Speaker 1: is going to take a good quarter or so one

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Speaker 1: or two quarters to get more of the population vaccinated

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Speaker 1: before they can reopen. So that's one reason. And the

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Speaker 1: other reason is that the People's Congress, which is kind

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Speaker 1: of the broader appointments of the government officials in the

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Speaker 1: next year we'll need, takes place in March. So to

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Speaker 1: your concern, I'm also worried about the next six months

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Speaker 1: that there might not be a lot of good news

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Speaker 1: coming out of China in the next six months. Something

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Speaker 1: Lewis is, well, I mean, do we have any precedents

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Speaker 1: of you know, what the priorities are going to be

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Speaker 1: for the same administration. But it's third iteration as it were,

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Speaker 1: and you know, it's how much will you be looking

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Speaker 1: at who's appointed in terms of the top posts for guidance? Yeah,

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Speaker 1: I think one of the things to look out for is,

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Speaker 1: you know, within the Politburo, you know how many members

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Speaker 1: uh you know are loyal to Shi that have been installed.

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Speaker 1: That represents an increase from maybe like the four or

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Speaker 1: so friendly members of the politbureau from the last political cycle.

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Speaker 1: The other issue is also kind of key appointments in

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Speaker 1: the military to see what degree of preparations, um, you know,

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Speaker 1: the government is making for to handle the issue of

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Speaker 1: Taiwan from a military standpoint. So those are some of

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Speaker 1: the political and military moves that we're watching. Again, it

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Speaker 1: doesn't bear much economic significance, but those are maybe some

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Speaker 1: of the things to watch for changes, Lewis, In five seconds,

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Speaker 1: will the Hanks Sang get a bit of a break

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Speaker 1: with the quarantine and other COVID restrictions lifted very quickly? Yes,

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Speaker 1: I think it will. That's exactly the length of time

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Speaker 1: I wanted this answer, Lewis like it's so much for

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Speaker 1: joining us. Louis Law there, director of Investment Group at

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Speaker 1: Brandis Investment Partners. This is blooming