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Speaker 1: Our guest is Andy Capran, partner in co c i

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Speaker 1: O at Regent Atlantic Capital. Andy, I'll make the case

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Speaker 1: that what happened last week in the UK has changed

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Speaker 1: a lot with central banks, and that even though the

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Speaker 1: FED you know, wants to target inflation and we'll have

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Speaker 1: the staying power to do so, it's getting pretty close

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Speaker 1: anyway to getting up to what some people might think

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Speaker 1: is the terminal rate if they go fifty or fifty

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Speaker 1: and fifty or up over four percent UH. And that

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Speaker 1: what happened in the UK last week is so significant

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Speaker 1: that maybe some pause will come into the picture. Tell

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Speaker 1: me I'm wrong, Well, I don't think you're wrong. I

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Speaker 1: think what happened in the UK last week was all

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Speaker 1: about UH policy on the fiscal side potentially becoming significantly

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Speaker 1: looser at the time when the main battle is still

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Speaker 1: was still with inflation. Marcus responding and kind, and then

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Speaker 1: the central Bank stepping in and doing one of its

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Speaker 1: core jobs, which is ensuring market functioning. UM, not necessarily stability,

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Speaker 1: but but at least ensuring that that the plumbing of

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Speaker 1: the financial system, the major insurance companies and major pensions

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Speaker 1: are able to keep the lights unable to keep to

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Speaker 1: keep operating. So that was a really important signal that

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Speaker 1: it's not just inflation. There are other concerns, and a

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Speaker 1: central bank of a major economy needs to be concerned

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Speaker 1: with market functioning. You say, take the FED and other

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Speaker 1: central banks that they were to when it comes to

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Speaker 1: the investing picture, what happens next? There was a lot

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Speaker 1: of the bad news already priced in, or could we

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Speaker 1: see some some deeper downturns when we start to get

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Speaker 1: owning season underway? Sure? So if if if you take

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Speaker 1: the central banks at their word, they've been very unambiguous

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Speaker 1: that they will continue to tighten the screws make monetary

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Speaker 1: policy more and more challenging until they see some combination

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Speaker 1: of a rate of inflation that is getting much closer

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Speaker 1: to its two percent target as well as some wobbliness

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Speaker 1: in the economy, something to indicate that we really risk

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Speaker 1: um the full employment side of the of the thirds

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Speaker 1: dual mandate. UM. I don't think we're there on either

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Speaker 1: point yet. UM. Last month's inflation print was was devastatingly bad.

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Speaker 1: But what did happen last month that was actually encouraging.

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Speaker 1: It was a goldilocks scenario, was that we had a

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Speaker 1: really good growth in the number of Americans employed at

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Speaker 1: the same time as the unemployment rate rose. So that

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Speaker 1: was exactly what the FED wants to see, people re

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Speaker 1: entering the labor force after the pandemic, getting labor force

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Speaker 1: participation back to normal. If we see something like that

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Speaker 1: again on Friday, that would be that would really be

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Speaker 1: a very bullish sign. I want to talk to China story.

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Speaker 1: We will not have trade this week for the Golden

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Speaker 1: Week festival, but we're looking ahead to the Party Congress

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Speaker 1: whether or not things change on the policy side there,

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Speaker 1: and you do see further reopening and growth for China's

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Speaker 1: economy with all the regulatory headwinds, though, how do you

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Speaker 1: view investing in the A d R s at the moment? Sure,

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Speaker 1: I think China has been a tough place to invest

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Speaker 1: for offshore investors for the past year and a half

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Speaker 1: UM between a tightening of regulatory screws over the course

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Speaker 1: of the past year and a half on top of

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Speaker 1: this risk of a d R D listing UM, which

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Speaker 1: for a very long time until very recently was the

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Speaker 1: primary liquidity pool for for China's biggest tech companies. Um,

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Speaker 1: I think it's it's happening relatively quietly. It's happening with

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Speaker 1: not a great degree of certainty yet UM, but we're

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Speaker 1: starting to see more progress, more straight talk on dealing

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Speaker 1: with regulators. UM. A team of American regulators are currently

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Speaker 1: in Hong Kong examining books of companies that have not

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Speaker 1: previously been able to UM to to TO to do

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Speaker 1: that kind of of an open look into into their

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Speaker 1: accounting standards. That's a really encouraging first step, I think.

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Speaker 1: And more interesting story is China's domestic a share market,

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Speaker 1: which is very under present, underrepresented in most global investors

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Speaker 1: portfolios because it's not a very large component of mscized

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Speaker 1: in disease. But Andy, you'll remember the long career discount,

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Speaker 1: and we're just reminded of that today with the missile

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Speaker 1: fire by North Korea. Is China getting into a situation

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Speaker 1: where there's going to be a China discount that because

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Speaker 1: of policy and because of common prosperity and all these

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Speaker 1: signs that we see that they're pulling back from market capitalism,

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Speaker 1: that there would be a discount. In other words, you know,

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Speaker 1: don't go there. So I I think what all governments

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Speaker 1: understand is that it's in their best interest to create

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Speaker 1: a well functioned economy. It's in the best interest to

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Speaker 1: create a wealthy population, and that requires being part of

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Speaker 1: the of the global order um if if IF what

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Speaker 1: I see in China is what's likely to happen is

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Speaker 1: they're trying to avoid the middle income trap that so

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Speaker 1: many other economies fell into as they as they approached

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Speaker 1: GDPs of about ten to fifteen thousand dollars per per

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Speaker 1: capita UM. The best and really only way to avoid

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Speaker 1: that is to continue to become an integral part of

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Speaker 1: the world economy. A lot of the impact of what's

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Speaker 1: happening in this part of the world as well, where

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Speaker 1: Brian and I are is about the strength of the dollar.

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Speaker 1: We're talking about how much further that continues. But whether

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Speaker 1: or not as well you do see another Asian financial crisis.

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Speaker 1: Is that sort of a concern um It is to

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Speaker 1: a limited extent. UM looking looking at China's economy in particular,

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Speaker 1: one of the ways that a lot of personal stat

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Speaker 1: things get done, it gets done is through real estate

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Speaker 1: rather than through financial instruments. UM. So starting to see

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Speaker 1: an unraveling of some of that financial system, less confidence

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Speaker 1: in investing in real estate UM. A lot more hurdles

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Speaker 1: to to doing that going forward could could have knock

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Speaker 1: on effects. Um. I think it's less likely to be

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Speaker 1: like a seven Asian financial crisis, more likely to be

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Speaker 1: like what happened in Japan where there was just a

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Speaker 1: period of low growth as the banks had to work

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Speaker 1: off some bad debt. So we got the earning season

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Speaker 1: coming up, and uh, we've seen like our max, if

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Speaker 1: you don't pre announce, you know, you get absolutely slaughtered.

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Speaker 1: I'm not sure that we've seen that many pre announcements

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Speaker 1: to make me think that this is going going to

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Speaker 1: be a negative earning season. Um, is the U S

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Speaker 1: economy strong enough that we will actually endure this this

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Speaker 1: next season? So this is super important. And as you

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Speaker 1: look at companies that have announced over the course of

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Speaker 1: the past few weeks, the ones that are outside of

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Speaker 1: the regular earning season, they've generally done a very good

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Speaker 1: job of passing on higher costs to consumers. Where you

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Speaker 1: see exceptions are largely based on execution more so than

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Speaker 1: than broader macroeconomic trends. I realized FedEx can be seen

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Speaker 1: as a bell weather um, but also it uh, it

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Speaker 1: materially underperformed in terms of just its core business relative

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Speaker 1: to d h L or ups. So this will be

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Speaker 1: the thing to watch in the in the current earning

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Speaker 1: cycle is our companies succeeding in maintaining their margins against

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Speaker 1: very high inflation. To date, that done a pretty good

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Speaker 1: job of that. Uh. The other thing to watch is

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Speaker 1: how how is the strong dollar impacting the strength of multinationals.

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Speaker 1: Um We've not seen a dollar surge this much in

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Speaker 1: such a short period in a long time. That's going

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Speaker 1: to lead to problems in currency translation. Andy, a pleasure.

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Speaker 1: Thanks for joining us. Andy Keover and his partner and

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Speaker 1: co c io at Region Atlantic Capital on the line

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Speaker 1: from New York for us here on Daybreak Asia