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Speaker 1: Let's get to our guests, abilash Narian, who is a

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Speaker 1: senior investment strategist at Standard Chartered Wealth Management. So if

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Speaker 1: people are wondering about the strength of the global economy,

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Speaker 1: there are a few measures you can cite that say

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Speaker 1: the US is kind of hanging in there. That's one

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Speaker 1: of the reasons why you've seen this nice bounce of

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Speaker 1: late on China. Well, Bloomberg did a survey of more

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Speaker 1: than a dozen factory managers and analysts looking at buy

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Speaker 1: orders coming in, and these factory managers said that the

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Speaker 1: orders are drying up in China. I would seem to

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Speaker 1: suggest that there's trouble ahead. What are you seeing with

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Speaker 1: general movement in the global economy here? Naryan good to

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Speaker 1: be held, No, absolutely. I mean, if you look at

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Speaker 1: the global economic outlook, We've obviously seen US go into

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Speaker 1: a technical recession. We've seen the growth expectations in Europe

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Speaker 1: come down sharply since the start of Russia Ukraine conflicts.

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Speaker 1: So clearly some of the big export markets that China

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Speaker 1: has are facing a growth slowdown. I think the other

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Speaker 1: thing to add to the picture is also the inventories.

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Speaker 1: So what we saw last year and then early part

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Speaker 1: of this year was that a lot of US and

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Speaker 1: European companies UH ordered a lot of inventories because they

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Speaker 1: wanted to, you know, go around the supply chain bottlenecks

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Speaker 1: that we were seeing a few months back. So if

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Speaker 1: you look at the inventories that are being reported, they

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Speaker 1: are at close to record highest, So you know, we

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Speaker 1: think that the slowdown it orders is also a function

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Speaker 1: of some of these inventories being drawn down. So overall,

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Speaker 1: I think the picture is clear that there are clear

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Speaker 1: concerns to global growth, and that's one of the reasons why,

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Speaker 1: you know, a couple of months back, we downgraded to

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Speaker 1: lobal equities to a neutral stats. You know, the recent rally.

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Speaker 1: Notwithstanding m HM, we are though seeing some optimism coming back.

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Speaker 1: The SMP five has been out for each of the

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Speaker 1: past four weeks. We had a pretty good rally in

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Speaker 1: Asian equities too at the end of last week. In

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Speaker 1: terms of whether or not we're going to continue to

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Speaker 1: see further upside for the remainder of the year. What

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Speaker 1: drives that if we do still have a lot of

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Speaker 1: these concerns about global growth, Well, I think the three

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Speaker 1: key factors that we're looking at when we think about equities, right.

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Speaker 1: So one is obviously global growth as we have talked

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Speaker 1: about it. The second is the picture for infliction. So

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Speaker 1: clearly in the past months data we have seen intentative

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Speaker 1: signs of inflation sort of softening or maybe peaking in

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Speaker 1: the US, and if that continues, then that will be

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Speaker 1: something that that does at the margin in greens markets

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Speaker 1: expectations that you know, central banks may not hike as

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Speaker 1: much as expected, but clearly, as we have seen in

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Speaker 1: the past two years, inflation keeps surprising to the upside.

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Speaker 1: So I'm not hanging my head to that. And I

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Speaker 1: think that the third key key factor to look at

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Speaker 1: is corporate earnings and margins specifically, now we have started

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Speaker 1: to see signs of wage inflation in the US running

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Speaker 1: at five percent UH and if we do see a

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Speaker 1: potential sort of stress on the margins, then that could

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Speaker 1: be something that that does you act as a drag

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Speaker 1: on the markets overall. Now, the Q two the earnings

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Speaker 1: work work quite good, but you know that's something to

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Speaker 1: watch out for. Just quickly, on the data dump coming

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Speaker 1: in China, I was last, are you're expecting a positive

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Speaker 1: surprise or maybe a negative? Well, we are expecting a

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Speaker 1: modest improvement in retail since and industrial production. Obviously, we

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Speaker 1: have seen pboc uh you know, sound a bit more

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Speaker 1: hawkish last week after the inflasion data came in, and

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Speaker 1: that's been one of the reasons why, you know, Asia

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Speaker 1: and Japan equities have lacked global equities and the rally

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Speaker 1: last week. So we think that if we do see

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Speaker 1: some signs of recovery in Chinese growth, even that we

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Speaker 1: think that the impact of COVID lockdowns has been limited.

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Speaker 1: Wanting to get some of your conviction calls, as you

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Speaker 1: rightly point out, the seal off that we've seen in

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Speaker 1: bonds and equities has only happened four times since eighteen

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Speaker 1: seventy or the eighteen seventies, I should say, what does

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Speaker 1: that mean for the sixty forty portfolio that many claiming

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Speaker 1: could be potentially dead? Now? Well, I think this is

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Speaker 1: this is this has been a debate in the markets

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Speaker 1: for the last couple of years, especially with bonding being

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Speaker 1: so low, and that had forced investors to you know,

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Speaker 1: take on more risk in form of more equity exposure.

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Speaker 1: But as you're rightly pointed out, I mean, this is

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Speaker 1: only the fourth instance since eighteen seventies that both equities

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Speaker 1: and bonds have declined year to date. And what you've

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Speaker 1: seen is that bond youth across most of the markets,

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Speaker 1: whether it's government bonds, whether it's investment grade or highly

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Speaker 1: corporate bonds are closed to you know, their their past

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Speaker 1: get highest, and that has made bonds a lot more attractive.

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Speaker 1: So we think that the next a year or so,

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Speaker 1: a sixty or folly port folio, or more broadly at

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Speaker 1: diversified allocation is all a favorite strategy, and we at

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Speaker 1: the margin, we prefer allocating more to bonds at the

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Speaker 1: expense of equities given the current valuations. I don't know

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Speaker 1: about you, but I keep going back and forth. When

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Speaker 1: I look at the improvement in the credit markets and

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Speaker 1: what the stock market has done over the past six

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Speaker 1: or seven weeks, I I feel as though, Yeah, there's

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Speaker 1: some wisdom they're looking out beyond you know whatever. And

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Speaker 1: then I look at the bond market and the inversion

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Speaker 1: of the yield curve, and I started getting pressed again.

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Speaker 1: Is there anything I can drink or drink into fix

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Speaker 1: my my confusion? Well, clearly, I mean if you look

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Speaker 1: at the equity market and the corporate bond markets, obviously

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Speaker 1: we've seen a big decline in incredit spreads, especially in

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Speaker 1: the US highly market. Uh. And if I look at

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Speaker 1: it right, if it boils down to your expectation of

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Speaker 1: default rates. So if you expect the growth slowed down

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Speaker 1: to be moderate, you don't expect you know, default rates

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Speaker 1: to spite to eight percent. Then if you have that,

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Speaker 1: you then clearly the markets have priced in an adequate

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Speaker 1: amount of risks as far as defaults are concerned. But

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Speaker 1: clearly the value in US high is starting to look

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Speaker 1: a bit stretched. But our favorite market right now in

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Speaker 1: bonds is Asian dollar bonds, where we think that the

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Speaker 1: valuations are quite compelling. And while we hear a lot

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Speaker 1: of noise about China highly property, sometimes it's it's worth

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Speaker 1: remembering the fact that at at the headline level, eight

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Speaker 1: of the bonds there are you know, investment grade, and

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Speaker 1: we think that given the China and India out on

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Speaker 1: a much more firm voting from an economic perspective, uh,

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Speaker 1: there is room for credit spreads and Nasian dollar bonds

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Speaker 1: to compress going forward. Alright, So we've talked quite a

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Speaker 1: lot of the risks, and we know that excessive policy

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Speaker 1: tightening by central banks is among them too. But what

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Speaker 1: about what we're seeing in terms of the U. S.

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Speaker 1: China relationship over Taiwan and the ongoing Russia Ukraine conflict

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Speaker 1: to how much is that kind of weighing into your

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Speaker 1: thinking in terms of allocating risk. Absolutely, it is. It

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Speaker 1: is a big risk. And I think when we think

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Speaker 1: about Russia Ukraine tensions, that's clearly been going on on

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Speaker 1: European equities and that's why earlier than the year we

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Speaker 1: downgraded European equities to a new troute from an overweight

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Speaker 1: stands earlier. And it's it's difficult to call out, you know,

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Speaker 1: how those things will lay out when we shift focused

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Speaker 1: to US channel tensions. I mean, there were a couple

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Speaker 1: of headlines over over the weekend, so we saw a

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Speaker 1: new delegate congressional delegation going to Taiwan, so that's bound

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Speaker 1: to keep the tensions higher. And you've seen uh, you

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Speaker 1: know five S O S Chinese is allow announcing that

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Speaker 1: they are planning to be based from from US exchanges. Now,

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Speaker 1: from market perspective, this is nothing new. We've seen other

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Speaker 1: restaurants such as sm I, C C, etcetera already deal

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Speaker 1: list from US exchanges. But you know, in the new term, uh,

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Speaker 1: the elevated tensions could mean that they act as a

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Speaker 1: headwind for for Chinese equities specifically. But from a twelventh perspective,

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Speaker 1: we've realized that geopolitics really impacts the market in a

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Speaker 1: material way, so we would use the current uh, you know,

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Speaker 1: lagging of Asian markets as an opportunity to add exposure there.

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Speaker 1: On commodities, we we had a nice um you know,

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Speaker 1: sort of following trend which helped us with the inflation worries,

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Speaker 1: and then all of a sudden, we saw a bounce

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Speaker 1: last week and then it all gave up on Friday,

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Speaker 1: which way our commodity is heading in the next six months. Well,

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Speaker 1: the outlook is different for industrial metals and energy in

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Speaker 1: our opinions, As far as industrial metals are concerned, we

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Speaker 1: think that we could see them decline in the next

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Speaker 1: twelve months, especially given that a big source of demand,

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Speaker 1: which is China's real estate sector, is expected to be

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Speaker 1: quite soft for the next twelve months. But as start

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Speaker 1: as oil prices are concerned, we do expect that we

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Speaker 1: have to bounce higher towards right. Appollach Naray and senior

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Speaker 1: investment strategist at Standard Charted Wealth Management, This is Bloomberg