WEBVTT - Robert Hoffman on the Markets (Radio)

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<v Speaker 1>Rob Hoffman is our guest. Robert is the head of

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<v Speaker 1>investment Counselors at City Private Bank South Asia. He joins

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<v Speaker 1>his via zoom from Singapore. Robert, thanks for being with us.

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<v Speaker 1>I was struck today by the City Group's Surprise Index

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<v Speaker 1>for the American economy at any rate, and there's a

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<v Speaker 1>very strong correlation between what's been going on with that

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<v Speaker 1>index and the S and P as it relates to

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<v Speaker 1>some hot numbers on the data and the expectation that

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<v Speaker 1>the FED is gonna have no choice but to remain aggressive.

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<v Speaker 1>So I guess we've got to begin with the FED.

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<v Speaker 1>How much more aggressive do you think they'll be? I

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<v Speaker 1>think the feed is completely data dependent right now, and

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<v Speaker 1>that the data that they're looking at is really around employment.

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<v Speaker 1>So this is gonna be a critical week as we

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<v Speaker 1>start to see the initial jobless claims come through to

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<v Speaker 1>see to get a good gauge on on how much

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<v Speaker 1>more aggressive at the FETE is going to be. Our

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<v Speaker 1>view is that that inflation still remains really tight, especially

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<v Speaker 1>in the US, and so the FEED is going to

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<v Speaker 1>remain laser focused on ensuring that they can try to

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<v Speaker 1>bring down some of that tightness and labor markets are

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<v Speaker 1>you are the view that we will see a global

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<v Speaker 1>recession if we're not already on the cusp of one.

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<v Speaker 1>I think it's all but a foregone conclusion at this

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<v Speaker 1>point that two and twenty three will will see a

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<v Speaker 1>recession specifically in the US. But the question now is

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<v Speaker 1>just how deep that recession is going to be. And

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<v Speaker 1>the challenge for investors is looking through at the long

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<v Speaker 1>term implications of policy changes from today, because there is

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<v Speaker 1>a long lead time for for how these effects trickle

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<v Speaker 1>through to the broader economy. So you see economic releases

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<v Speaker 1>as well as the earnings numbers that come out later

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<v Speaker 1>this week, traders analysts will be passing through those numbers

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<v Speaker 1>to try to make projections for where this market can go.

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<v Speaker 1>And uh, I think that you're going to see a

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<v Speaker 1>lot of lost sleep from analysts over this week, and

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<v Speaker 1>so this will really dictate that the terms of how

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<v Speaker 1>Q four is going to go for us. A very

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<v Speaker 1>important week ahead. Yeah, most definitely. And I think to

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<v Speaker 1>your point, FED Vice chair Lyle Brainerd was kind of

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<v Speaker 1>making the case about the lag time involved when you

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<v Speaker 1>begin to tighten. Uh, some of the impact is not

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<v Speaker 1>known for for a while. But one thing I think

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<v Speaker 1>we can agree on, Robert is the fact that the

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<v Speaker 1>dollar has been tremendously strong, and this has done some

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<v Speaker 1>damage to the Japanese currency a bit, but other e

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<v Speaker 1>M currencies have not been faring well at all. And

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<v Speaker 1>what type of headwind does a strong dollar represent in

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<v Speaker 1>in your part of the world. I was sitting here

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<v Speaker 1>in Singapore, where you're tied a little bit more closer

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<v Speaker 1>to the U. S. Dollar, you feel a little bit

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<v Speaker 1>less of the impact. But I think the central governments

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<v Speaker 1>and it forces hands of central governments in reserve banks

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<v Speaker 1>around the world to how they're going to treat their

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<v Speaker 1>their monetary policy. So you saw Australia last week coming

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<v Speaker 1>in and surprising markets with a slightly devish tone on

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<v Speaker 1>on what they were doing with rates US on immediate

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<v Speaker 1>currency impact, and now you're seeing Australian dollar trading and

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<v Speaker 1>lows for the year. Um, there's I was in Australia

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<v Speaker 1>last week when that came through, and I can tell

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<v Speaker 1>you that there was a lot of immediate concern from

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<v Speaker 1>business owners as to what they're going to do with

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<v Speaker 1>some excess savings and how they're going to hedge out

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<v Speaker 1>some of that risk. So I do think that that

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<v Speaker 1>the US is exporting a lot of this concern as

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<v Speaker 1>they continue to strengthen the dollar with interest rate increases,

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<v Speaker 1>they're making it the concerns of other countries. And so

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<v Speaker 1>you see what happened in the UK, you see what

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<v Speaker 1>happened in Australa. You expect more of this specifically here

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<v Speaker 1>in the region. So we've had Taiwan urging come on

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<v Speaker 1>t SMC and downplaying the impact of the biden ship rules,

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<v Speaker 1>But how much do these increase in US Sino relations

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<v Speaker 1>kind of complicate things, particularly as we're looking to the

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<v Speaker 1>Party Congress in China this weekend. So I think they

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<v Speaker 1>obviously complicates things enormously because you're disrupting the entire global

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<v Speaker 1>supply chain at the time that it's already been disrupted

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<v Speaker 1>over the last two years, and it creates even more uncertainty.

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<v Speaker 1>So all of the feed through manufacturers, all of the

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<v Speaker 1>the end users are going to have to try to

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<v Speaker 1>figure out how they're going to redistribute their supply chains

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<v Speaker 1>to ensure that they have supply in periods of heightened uncertainty.

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<v Speaker 1>And that's only going to increase, especially with what you

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<v Speaker 1>see in Russia and Ukraine and and in China Taiwan.

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<v Speaker 1>That the whole discussion there is going to have to

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<v Speaker 1>to make companies start to plan through multiple contingency plans.

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<v Speaker 1>That's also going to continue to put pressure on inflation

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<v Speaker 1>because as you diversify that supply chain and get away

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<v Speaker 1>from the lowest cost provider, you have to realize that

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<v Speaker 1>that that it comes at a cost. But the tent

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<v Speaker 1>here on the part of the ad Biden administration is

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<v Speaker 1>to constrain growth of China's nascent semiconductor industry. I mean,

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<v Speaker 1>what type of headwind does that represent to technology companies

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<v Speaker 1>on the mainland. It again, it comes back to the

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<v Speaker 1>idea that is, you're trying to disrupt the supply chains,

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<v Speaker 1>whether it's on mainland, whether it's in US, whether it's

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<v Speaker 1>in Taiwan. You're creating tension throughout that entire supply chain.

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<v Speaker 1>So making these long term decisions is going to be

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<v Speaker 1>a really difficult proposition as to think about how are

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<v Speaker 1>we going to do this for the next five to

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<v Speaker 1>ten years. So the other thing to keep in mind

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<v Speaker 1>too is that you are also we have to take

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<v Speaker 1>this with a grain of salt because we are at

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<v Speaker 1>the height of political tensions. Just given the fact that

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<v Speaker 1>you've got an important party congress in China as well

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<v Speaker 1>as US elections coming around the corner over the next

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<v Speaker 1>couple of weeks. So with that you're going to see

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<v Speaker 1>an increase in rhetoric. But I do think it dies

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<v Speaker 1>down as we get past this this really volatile period.

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<v Speaker 1>You were talking before about central banks in and a

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<v Speaker 1>small pivot I guess coming through from Australia. But how

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<v Speaker 1>much of a concern of real estate market's globally when

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<v Speaker 1>you do have high levels of floating rate mortgages. I

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<v Speaker 1>think it's not only is it levels of floating rate mortgages,

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<v Speaker 1>it's each country is a little bit unique. You've got

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<v Speaker 1>high debt to income ratio concerns in the UK, whereas

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<v Speaker 1>in Australia you just have outright high floating rate liabilities exposure.

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<v Speaker 1>It's in meeting yesterday, as I mentioned earlier on at

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<v Speaker 1>the other segment, it was I met with real estate

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<v Speaker 1>developers in Australia. They've never seen in These are principles

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<v Speaker 1>that have owned these companies for thirty years. They have

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<v Speaker 1>never seen a faster disruption to supply and and new projects.

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<v Speaker 1>So everything is being reconsidered and refactored right now for them,

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<v Speaker 1>and it's really difficult to make long term decisions on development.

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<v Speaker 1>The US, I think, is one of the markets, though

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<v Speaker 1>it's relatively well insulated from higher interest rates, simply because

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<v Speaker 1>floating rate mortgages have been really largely done away with

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<v Speaker 1>as you've gone off this period of really low interest rates.

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<v Speaker 1>But countries like Hong Kong, uh countries like UK Australia

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<v Speaker 1>where they have a higher proportion of floating rate mortgages,

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<v Speaker 1>this is going to be a very largest eruption to

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<v Speaker 1>their real estate markets. So, um, you could see some

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<v Speaker 1>economic pain here in the short term just from that. Yeah,

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<v Speaker 1>And the CEO of one of your competitors, Brian moynihan

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<v Speaker 1>of Bank of America, was saying, the US consumers in

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<v Speaker 1>very very good shape now with money in their accounts

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<v Speaker 1>at multiples of what we're what was around during or

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<v Speaker 1>before the pandemic. Very quickly, Robert, I can give you

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<v Speaker 1>about sixty seconds to lay out a bold case for

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<v Speaker 1>going along an asset right now. If I if I said, quickly,

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<v Speaker 1>when we've got to put money to work on the

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<v Speaker 1>long side, what would you do? Great question. So I

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<v Speaker 1>think one of the things that that you have to

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<v Speaker 1>keep in mind too, is that that sentiment is absolutely

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<v Speaker 1>dripping with negativity right now everywhere that you turn, and

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<v Speaker 1>and that's reflected in positioning, it's reflected in how what

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<v Speaker 1>the outlook is for for asset purchases. But as you

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<v Speaker 1>look at this, as we go into your end, there's

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<v Speaker 1>a real chance that you could see a surprise to

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<v Speaker 1>the upside on earnings just given the fact that the

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<v Speaker 1>unit sales may be down, but the actual first inflationary

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<v Speaker 1>prices may put upward pressure on profitability into Q four.

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<v Speaker 1>So there's a real contrary in case to be made

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<v Speaker 1>right now that in the short term you could see

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<v Speaker 1>upside equity markets. Now, I would want to make sure

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<v Speaker 1>that I own quality, high quality assets with strong free

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<v Speaker 1>cash flows. I'm not sure I go for low quality

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<v Speaker 1>assets with pure growth. So um, don't don't be completely

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<v Speaker 1>out of markets, but just make sure that you maintain

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<v Speaker 1>positioning around your risk exposures. Robert a pleasure. We'll see

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<v Speaker 1>you on TV in a couple of hours as well.

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<v Speaker 1>Robert Hoffman is Head of Investment Councilors at City Private

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<v Speaker 1>Bank South Asia with US from Singapore here on Bloomberg

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<v Speaker 1>Daybreak Asia