1 00:00:00,040 --> 00:00:01,800 Speaker 1: I mean up on nine minutes past the hour. Let's 2 00:00:01,800 --> 00:00:04,400 Speaker 1: say good morning to Hayden Briscoe, head of Emerging Markets 3 00:00:04,480 --> 00:00:08,800 Speaker 1: and Asia Pacific Fixed Income at UBS Asset Management. Hayden, 4 00:00:08,840 --> 00:00:10,560 Speaker 1: great to have you with us on the show today. 5 00:00:10,680 --> 00:00:12,480 Speaker 1: There's a lot of risk out there in the market, 6 00:00:12,720 --> 00:00:16,760 Speaker 1: and we see investors turning to some haven investments, like 7 00:00:17,120 --> 00:00:20,000 Speaker 1: they're buying the dollar like crazy. The dollar has has 8 00:00:20,040 --> 00:00:24,680 Speaker 1: had huge gains, but bonds, uh, not so much. Right now. 9 00:00:24,720 --> 00:00:26,880 Speaker 1: We've got the yield on the tenure Australian bond at 10 00:00:26,880 --> 00:00:29,680 Speaker 1: four point zero eight percent. The yield on the tenure 11 00:00:30,280 --> 00:00:32,760 Speaker 1: is at three six and the two year even at 12 00:00:32,800 --> 00:00:36,000 Speaker 1: four eight. Uh. You'd think that some money would be 13 00:00:36,000 --> 00:00:39,879 Speaker 1: pouring into bonds, but just the opposite is happening. Why well, 14 00:00:39,880 --> 00:00:41,960 Speaker 1: I think they're into links, to be honest. If we 15 00:00:42,000 --> 00:00:44,640 Speaker 1: look at the US dollar going higher and higher, what 16 00:00:44,720 --> 00:00:46,839 Speaker 1: we're seeing at the moment is the central banks a 17 00:00:46,920 --> 00:00:50,000 Speaker 1: stepping in to defend their currencies, and in particular the Japanese. 18 00:00:50,680 --> 00:00:52,800 Speaker 1: You would have noticed when the Japanese n got up 19 00:00:52,800 --> 00:00:56,720 Speaker 1: to a hundred and forty five in price thereabouts the 20 00:00:56,840 --> 00:00:59,920 Speaker 1: very next night or that night, we saw a big 21 00:01:00,040 --> 00:01:03,160 Speaker 1: unpopping yields in the US, so central banks, as they 22 00:01:03,200 --> 00:01:06,360 Speaker 1: step in to slow the decline in their currency relative 23 00:01:06,400 --> 00:01:08,400 Speaker 1: to the U S Dollar, are letting go therefore in 24 00:01:08,480 --> 00:01:11,160 Speaker 1: exchange reserves, so we're seeing more and more US dollar 25 00:01:11,319 --> 00:01:14,520 Speaker 1: bonds selling across the curve. I think the interesting thing 26 00:01:14,600 --> 00:01:17,600 Speaker 1: this time is maybe not necessarily in the front part 27 00:01:17,600 --> 00:01:19,520 Speaker 1: of the yield curve, which is typically where they sell. 28 00:01:19,920 --> 00:01:22,760 Speaker 1: It seems to indicate their selling across the entire curve, 29 00:01:23,040 --> 00:01:25,759 Speaker 1: but we won't get that information for some time, so 30 00:01:25,800 --> 00:01:28,080 Speaker 1: we'll have to continue to see them selling. I think 31 00:01:28,560 --> 00:01:31,160 Speaker 1: when it comes to the currency weakness and the intervention 32 00:01:31,200 --> 00:01:33,560 Speaker 1: that we've seen, there's been some speculation that you could 33 00:01:33,600 --> 00:01:37,959 Speaker 1: see sterling intervention too, if not. What kind of moves though, 34 00:01:38,000 --> 00:01:41,640 Speaker 1: do we see in terms of parity there well, I 35 00:01:41,640 --> 00:01:44,840 Speaker 1: think obviously the Sterling is just I suppose one of 36 00:01:44,840 --> 00:01:47,960 Speaker 1: the many currencies that's under pressure right now. You know, 37 00:01:48,080 --> 00:01:52,000 Speaker 1: relatively small economy, smaller than Brazil, I like to tell everybody, 38 00:01:52,040 --> 00:01:54,559 Speaker 1: So it's not a huge economy to focus on these days, 39 00:01:55,080 --> 00:01:57,280 Speaker 1: but it's just an indication of what's likely to happen. 40 00:01:57,360 --> 00:02:00,240 Speaker 1: I think with developed market countries we need to be 41 00:02:00,320 --> 00:02:03,760 Speaker 1: concerned because that what they're doing is as inflations rising, 42 00:02:03,800 --> 00:02:07,800 Speaker 1: they then using fiscal large ESK and we saw that 43 00:02:07,880 --> 00:02:10,800 Speaker 1: with the UK, and they're not moving away from quantitative 44 00:02:10,840 --> 00:02:15,519 Speaker 1: easy more towards this debt monetization or modern monetary theory MMT, 45 00:02:16,000 --> 00:02:18,280 Speaker 1: which is essentially says, spend like as much as you want. 46 00:02:18,400 --> 00:02:20,880 Speaker 1: Two inflation rate takes off, which means your currency is 47 00:02:20,880 --> 00:02:23,079 Speaker 1: going to continue to come under pressure. Then you have 48 00:02:23,120 --> 00:02:27,360 Speaker 1: two high rates collapses, your domestic macro backdrop, your currency 49 00:02:27,360 --> 00:02:30,560 Speaker 1: sells off, and guess what, that's an emerging market debt characteristic. 50 00:02:31,120 --> 00:02:33,600 Speaker 1: So there is a potentious starting to see the early 51 00:02:33,760 --> 00:02:37,400 Speaker 1: signs and developed market bond markets or economies taking on 52 00:02:37,480 --> 00:02:41,240 Speaker 1: emerging market like characteristics. And we wanted to talk about 53 00:02:41,600 --> 00:02:44,720 Speaker 1: the FED. St. Louis FED Chief James Bullard warning that 54 00:02:44,880 --> 00:02:48,080 Speaker 1: the Fed's credibility is on the line. At what point 55 00:02:48,120 --> 00:02:50,120 Speaker 1: do we continue to see hikes or how much do 56 00:02:50,160 --> 00:02:52,520 Speaker 1: we wait to see? Should they wait, I should say, 57 00:02:52,560 --> 00:02:54,560 Speaker 1: to see whether or not the hikes that have already 58 00:02:54,600 --> 00:03:00,720 Speaker 1: happened are actually moving to restore price stability. Yeah, Well, 59 00:03:00,760 --> 00:03:03,080 Speaker 1: I think the key thing we're talking about here is 60 00:03:03,280 --> 00:03:06,280 Speaker 1: um there seems to be very strong views in the 61 00:03:06,320 --> 00:03:09,079 Speaker 1: market at the moment around the inflationist camp and very 62 00:03:09,120 --> 00:03:13,640 Speaker 1: strong views about the slow down recessionist camp at the moment. 63 00:03:13,680 --> 00:03:15,280 Speaker 1: So I think the strongest view to have is not 64 00:03:15,400 --> 00:03:18,240 Speaker 1: have a strong view and be quite open minded about it. 65 00:03:18,760 --> 00:03:21,080 Speaker 1: The problem is the FED is stuck at the moment 66 00:03:21,560 --> 00:03:24,280 Speaker 1: with a sticky inflation. Even if it rolls over at 67 00:03:24,320 --> 00:03:26,520 Speaker 1: the headline, it's coming, the core measure is probably going 68 00:03:26,560 --> 00:03:29,200 Speaker 1: to stay somewhere around this five to six percent, and 69 00:03:29,240 --> 00:03:33,280 Speaker 1: while you've still got a strong unemployment number. Um, that's 70 00:03:33,320 --> 00:03:35,200 Speaker 1: the Fed's policy, so they're going to have to keep 71 00:03:35,240 --> 00:03:38,800 Speaker 1: on hiking here that may not necessarily line up with 72 00:03:38,840 --> 00:03:41,480 Speaker 1: the growth backdrop. And you're seeing this with the gross 73 00:03:41,480 --> 00:03:44,960 Speaker 1: domestic income and the and the GDP. So GDP is 74 00:03:44,960 --> 00:03:48,280 Speaker 1: obviously very very weak, but gross domestic income is still 75 00:03:48,320 --> 00:03:51,560 Speaker 1: relatively strong, So it's telling you it's really stuck in 76 00:03:51,600 --> 00:03:53,800 Speaker 1: Now suppose that upper echel line of earners and really 77 00:03:53,800 --> 00:03:58,480 Speaker 1: not getting into the lower income bracket, which really drives 78 00:03:58,480 --> 00:04:01,280 Speaker 1: at GDP at the moment. So that's going to keep 79 00:04:01,280 --> 00:04:03,160 Speaker 1: them hiking, I think, and even though we're going to 80 00:04:03,160 --> 00:04:05,520 Speaker 1: see a slowdown. So that's quite a dilemma for them, 81 00:04:05,520 --> 00:04:08,240 Speaker 1: and they haven't faced that for a couple of decades now. 82 00:04:08,320 --> 00:04:11,240 Speaker 1: It's been a long time since the FED led the markets. 83 00:04:11,280 --> 00:04:13,800 Speaker 1: The markets have led the Fed, and the markets are 84 00:04:13,840 --> 00:04:16,040 Speaker 1: telling the Fed now you have a bit of a 85 00:04:16,080 --> 00:04:20,080 Speaker 1: problem here, and the Fed doesn't seem to be listening. Yeah. Look, 86 00:04:20,120 --> 00:04:22,479 Speaker 1: I think they're very dogged on the inflation number right now, 87 00:04:22,720 --> 00:04:24,840 Speaker 1: and that's going to be the problem where you're going 88 00:04:24,920 --> 00:04:30,760 Speaker 1: to see that very unfortunate wedge driven into the outcomes here, 89 00:04:31,240 --> 00:04:35,040 Speaker 1: much higher rates with iron inflation outcomes while growth starts 90 00:04:35,040 --> 00:04:37,479 Speaker 1: to peter off. And that's not a great recipe for 91 00:04:37,560 --> 00:04:42,080 Speaker 1: risk assets right now. So we would be underweight credit 92 00:04:42,120 --> 00:04:45,720 Speaker 1: now relative to our index. Is still expecting the rate 93 00:04:45,800 --> 00:04:49,800 Speaker 1: hikes to be to come through Pals talking along those 94 00:04:49,880 --> 00:04:53,000 Speaker 1: lines again, they're going to make a mistake. Um, they're 95 00:04:53,000 --> 00:04:55,360 Speaker 1: probably going to keep hiking until they break markets. And 96 00:04:56,279 --> 00:04:59,400 Speaker 1: he's more or less said that publicly as well, that 97 00:04:59,760 --> 00:05:02,800 Speaker 1: he's not that concerned about financial markets, he's more concerned 98 00:05:02,800 --> 00:05:06,760 Speaker 1: about inflation. And again focusing in on that unemployment number, 99 00:05:06,800 --> 00:05:09,000 Speaker 1: which obviously we all know is a very very very 100 00:05:09,040 --> 00:05:11,479 Speaker 1: backward looking number, So it really doesn't give you a 101 00:05:11,520 --> 00:05:13,400 Speaker 1: lead on where the economy is going or the forward 102 00:05:13,480 --> 00:05:17,400 Speaker 1: leaning indicators are pointing to a slowing across the board. 103 00:05:18,000 --> 00:05:20,240 Speaker 1: So the FED hiking as we see the PBOC stay 104 00:05:20,240 --> 00:05:23,839 Speaker 1: accommodative and more signs of weakness in China's economy. You're saying, 105 00:05:24,160 --> 00:05:28,039 Speaker 1: potentially aquard on shore Chinese bonds here. Look, yeah, we 106 00:05:28,120 --> 00:05:30,599 Speaker 1: love the Chinese bonds at the moment, the only bond 107 00:05:30,640 --> 00:05:32,760 Speaker 1: market in the world that's up years to day to 108 00:05:32,800 --> 00:05:34,760 Speaker 1: around three point seven percent if you're looking at the 109 00:05:34,800 --> 00:05:37,839 Speaker 1: index level, and they're up again last year as well, 110 00:05:37,880 --> 00:05:41,040 Speaker 1: So they've been the great diversifier and everybody's portfolio that 111 00:05:41,080 --> 00:05:43,640 Speaker 1: we've been trying to get our clients on board with. 112 00:05:44,520 --> 00:05:46,560 Speaker 1: This year, Unfortunately, we saw a lot of profit taking 113 00:05:46,560 --> 00:05:49,039 Speaker 1: on a tactical asset a location basis as soon as 114 00:05:49,080 --> 00:05:52,440 Speaker 1: those yields went below the US but obviously it's been 115 00:05:52,520 --> 00:05:55,480 Speaker 1: the place to hide out. You've got very low inflation. 116 00:05:55,800 --> 00:05:58,560 Speaker 1: If you look at developed market inflation, it's broadly around 117 00:05:58,560 --> 00:06:01,120 Speaker 1: this let's say, six percent of ten, whereas if you 118 00:06:01,160 --> 00:06:03,479 Speaker 1: look across Asia we see inflation around this three to 119 00:06:03,560 --> 00:06:06,120 Speaker 1: seven and China being at the lower round of that, 120 00:06:06,279 --> 00:06:09,680 Speaker 1: which means bonds can still remain very very well bid, 121 00:06:10,000 --> 00:06:12,000 Speaker 1: but you can lose on the currency though right well, 122 00:06:12,040 --> 00:06:14,840 Speaker 1: actually now it's the opposite, right, so we would yes, 123 00:06:14,880 --> 00:06:16,720 Speaker 1: you would lose it if you're unhedged. But what we're 124 00:06:16,760 --> 00:06:19,400 Speaker 1: saying now is you should be fully hedged up until 125 00:06:19,400 --> 00:06:21,719 Speaker 1: about the middle of the year. It costs you to hedge. 126 00:06:21,720 --> 00:06:23,920 Speaker 1: It's actually flipped around the other way. You now pick 127 00:06:23,960 --> 00:06:26,240 Speaker 1: up about a hundred and fifty basis points and lunch. 128 00:06:26,480 --> 00:06:29,320 Speaker 1: Quick final question. At some point the market will see 129 00:06:29,400 --> 00:06:32,880 Speaker 1: value in the short term bond yields in the United States, 130 00:06:33,480 --> 00:06:36,839 Speaker 1: and will that be because of level or because of data. 131 00:06:37,360 --> 00:06:39,160 Speaker 1: I think it'll be a combination of both. But right 132 00:06:39,200 --> 00:06:41,919 Speaker 1: now we're saying that incomes back, and to your point, 133 00:06:42,000 --> 00:06:44,560 Speaker 1: it's the front part of the yield curve where value 134 00:06:44,600 --> 00:06:47,400 Speaker 1: is offered, where there's less risk that you're going to 135 00:06:47,480 --> 00:06:51,640 Speaker 1: lose money in a total return sense, and less risk 136 00:06:51,760 --> 00:06:54,359 Speaker 1: in the capital loss perspective as well. So we'd be 137 00:06:54,440 --> 00:06:57,760 Speaker 1: anywhere in between the one to three Hayden always a 138 00:06:57,760 --> 00:06:59,680 Speaker 1: pleasure had and brisk go ahead of emerging markets in 139 00:06:59,760 --> 00:07:02,680 Speaker 1: Asia specific fixed income at UBS Asset Management in our 140 00:07:02,720 --> 00:07:03,560 Speaker 1: Hong Kong studio