Speaker 1: Rob Hoffman is our guest. Robert is the head of
Speaker 1: investment Counselors at City Private Bank South Asia. He joins
Speaker 1: his via zoom from Singapore. Robert, thanks for being with us.
Speaker 1: I was struck today by the City Group's Surprise Index
Speaker 1: for the American economy at any rate, and there's a
Speaker 1: very strong correlation between what's been going on with that
Speaker 1: index and the S and P as it relates to
Speaker 1: some hot numbers on the data and the expectation that
Speaker 1: the FED is gonna have no choice but to remain aggressive.
Speaker 1: So I guess we've got to begin with the FED.
Speaker 1: How much more aggressive do you think they'll be? I
Speaker 1: think the feed is completely data dependent right now, and
Speaker 1: that the data that they're looking at is really around employment.
Speaker 1: So this is gonna be a critical week as we
Speaker 1: start to see the initial jobless claims come through to
Speaker 1: see to get a good gauge on on how much
Speaker 1: more aggressive at the FETE is going to be. Our
Speaker 1: view is that that inflation still remains really tight, especially
Speaker 1: in the US, and so the FEED is going to
Speaker 1: remain laser focused on ensuring that they can try to
Speaker 1: bring down some of that tightness and labor markets are
Speaker 1: you are the view that we will see a global
Speaker 1: recession if we're not already on the cusp of one.
Speaker 1: I think it's all but a foregone conclusion at this
Speaker 1: point that two and twenty three will will see a
Speaker 1: recession specifically in the US. But the question now is
Speaker 1: just how deep that recession is going to be. And
Speaker 1: the challenge for investors is looking through at the long
Speaker 1: term implications of policy changes from today, because there is
Speaker 1: a long lead time for for how these effects trickle
Speaker 1: through to the broader economy. So you see economic releases
Speaker 1: as well as the earnings numbers that come out later
Speaker 1: this week, traders analysts will be passing through those numbers
Speaker 1: to try to make projections for where this market can go.
Speaker 1: And uh, I think that you're going to see a
Speaker 1: lot of lost sleep from analysts over this week, and
Speaker 1: so this will really dictate that the terms of how
Speaker 1: Q four is going to go for us. A very
Speaker 1: important week ahead. Yeah, most definitely. And I think to
Speaker 1: your point, FED Vice chair Lyle Brainerd was kind of
Speaker 1: making the case about the lag time involved when you
Speaker 1: begin to tighten. Uh, some of the impact is not
Speaker 1: known for for a while. But one thing I think
Speaker 1: we can agree on, Robert is the fact that the
Speaker 1: dollar has been tremendously strong, and this has done some
Speaker 1: damage to the Japanese currency a bit, but other e
Speaker 1: M currencies have not been faring well at all. And
Speaker 1: what type of headwind does a strong dollar represent in
Speaker 1: in your part of the world. I was sitting here
Speaker 1: in Singapore, where you're tied a little bit more closer
Speaker 1: to the U. S. Dollar, you feel a little bit
Speaker 1: less of the impact. But I think the central governments
Speaker 1: and it forces hands of central governments in reserve banks
Speaker 1: around the world to how they're going to treat their
Speaker 1: their monetary policy. So you saw Australia last week coming
Speaker 1: in and surprising markets with a slightly devish tone on
Speaker 1: on what they were doing with rates US on immediate
Speaker 1: currency impact, and now you're seeing Australian dollar trading and
Speaker 1: lows for the year. Um, there's I was in Australia
Speaker 1: last week when that came through, and I can tell
Speaker 1: you that there was a lot of immediate concern from
Speaker 1: business owners as to what they're going to do with
Speaker 1: some excess savings and how they're going to hedge out
Speaker 1: some of that risk. So I do think that that
Speaker 1: the US is exporting a lot of this concern as
Speaker 1: they continue to strengthen the dollar with interest rate increases,
Speaker 1: they're making it the concerns of other countries. And so
Speaker 1: you see what happened in the UK, you see what
Speaker 1: happened in Australa. You expect more of this specifically here
Speaker 1: in the region. So we've had Taiwan urging come on
Speaker 1: t SMC and downplaying the impact of the biden ship rules,
Speaker 1: But how much do these increase in US Sino relations
Speaker 1: kind of complicate things, particularly as we're looking to the
Speaker 1: Party Congress in China this weekend. So I think they
Speaker 1: obviously complicates things enormously because you're disrupting the entire global
Speaker 1: supply chain at the time that it's already been disrupted
Speaker 1: over the last two years, and it creates even more uncertainty.
Speaker 1: So all of the feed through manufacturers, all of the
Speaker 1: the end users are going to have to try to
Speaker 1: figure out how they're going to redistribute their supply chains
Speaker 1: to ensure that they have supply in periods of heightened uncertainty.
Speaker 1: And that's only going to increase, especially with what you
Speaker 1: see in Russia and Ukraine and and in China Taiwan.
Speaker 1: That the whole discussion there is going to have to
Speaker 1: to make companies start to plan through multiple contingency plans.
Speaker 1: That's also going to continue to put pressure on inflation
Speaker 1: because as you diversify that supply chain and get away
Speaker 1: from the lowest cost provider, you have to realize that
Speaker 1: that that it comes at a cost. But the tent
Speaker 1: here on the part of the ad Biden administration is
Speaker 1: to constrain growth of China's nascent semiconductor industry. I mean,
Speaker 1: what type of headwind does that represent to technology companies
Speaker 1: on the mainland. It again, it comes back to the
Speaker 1: idea that is, you're trying to disrupt the supply chains,
Speaker 1: whether it's on mainland, whether it's in US, whether it's
Speaker 1: in Taiwan. You're creating tension throughout that entire supply chain.
Speaker 1: So making these long term decisions is going to be
Speaker 1: a really difficult proposition as to think about how are
Speaker 1: we going to do this for the next five to
Speaker 1: ten years. So the other thing to keep in mind
Speaker 1: too is that you are also we have to take
Speaker 1: this with a grain of salt because we are at
Speaker 1: the height of political tensions. Just given the fact that
Speaker 1: you've got an important party congress in China as well
Speaker 1: as US elections coming around the corner over the next
Speaker 1: couple of weeks. So with that you're going to see
Speaker 1: an increase in rhetoric. But I do think it dies
Speaker 1: down as we get past this this really volatile period.
Speaker 1: You were talking before about central banks in and a
Speaker 1: small pivot I guess coming through from Australia. But how
Speaker 1: much of a concern of real estate market's globally when
Speaker 1: you do have high levels of floating rate mortgages. I
Speaker 1: think it's not only is it levels of floating rate mortgages,
Speaker 1: it's each country is a little bit unique. You've got
Speaker 1: high debt to income ratio concerns in the UK, whereas
Speaker 1: in Australia you just have outright high floating rate liabilities exposure.
Speaker 1: It's in meeting yesterday, as I mentioned earlier on at
Speaker 1: the other segment, it was I met with real estate
Speaker 1: developers in Australia. They've never seen in These are principles
Speaker 1: that have owned these companies for thirty years. They have
Speaker 1: never seen a faster disruption to supply and and new projects.
Speaker 1: So everything is being reconsidered and refactored right now for them,
Speaker 1: and it's really difficult to make long term decisions on development.
Speaker 1: The US, I think, is one of the markets, though
Speaker 1: it's relatively well insulated from higher interest rates, simply because
Speaker 1: floating rate mortgages have been really largely done away with
Speaker 1: as you've gone off this period of really low interest rates.
Speaker 1: But countries like Hong Kong, uh countries like UK Australia
Speaker 1: where they have a higher proportion of floating rate mortgages,
Speaker 1: this is going to be a very largest eruption to
Speaker 1: their real estate markets. So, um, you could see some
Speaker 1: economic pain here in the short term just from that. Yeah,
Speaker 1: And the CEO of one of your competitors, Brian moynihan
Speaker 1: of Bank of America, was saying, the US consumers in
Speaker 1: very very good shape now with money in their accounts
Speaker 1: at multiples of what we're what was around during or
Speaker 1: before the pandemic. Very quickly, Robert, I can give you
Speaker 1: about sixty seconds to lay out a bold case for
Speaker 1: going along an asset right now. If I if I said, quickly,
Speaker 1: when we've got to put money to work on the
Speaker 1: long side, what would you do? Great question. So I
Speaker 1: think one of the things that that you have to
Speaker 1: keep in mind too, is that that sentiment is absolutely
Speaker 1: dripping with negativity right now everywhere that you turn, and
Speaker 1: and that's reflected in positioning, it's reflected in how what
Speaker 1: the outlook is for for asset purchases. But as you
Speaker 1: look at this, as we go into your end, there's
Speaker 1: a real chance that you could see a surprise to
Speaker 1: the upside on earnings just given the fact that the
Speaker 1: unit sales may be down, but the actual first inflationary
Speaker 1: prices may put upward pressure on profitability into Q four.
Speaker 1: So there's a real contrary in case to be made
Speaker 1: right now that in the short term you could see
Speaker 1: upside equity markets. Now, I would want to make sure
Speaker 1: that I own quality, high quality assets with strong free
Speaker 1: cash flows. I'm not sure I go for low quality
Speaker 1: assets with pure growth. So um, don't don't be completely
Speaker 1: out of markets, but just make sure that you maintain
Speaker 1: positioning around your risk exposures. Robert a pleasure. We'll see
Speaker 1: you on TV in a couple of hours as well.
Speaker 1: Robert Hoffman is Head of Investment Councilors at City Private
Speaker 1: Bank South Asia with US from Singapore here on Bloomberg
Speaker 1: Daybreak Asia