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Speaker 1: Our guest is Mark Matthews, head of Asia research at

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Speaker 1: Julius bear Mark. One of the main transmission points for

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Speaker 1: the for the FED action is a strong dollar, and

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Speaker 1: what's interesting is that it doesn't seem like we've had

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Speaker 1: too many complaints about that. It does help the FED

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Speaker 1: fight inflation, but it makes it very difficult for a

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Speaker 1: lot of countries in the emerging market sphere. Why is

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Speaker 1: that well, because, as you rightly say, Brian, the higher

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Speaker 1: the dollar, the lower the imported costs of goods are

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Speaker 1: in the Sorry, Mark, I think I think the main

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Speaker 1: the main thrust of my question was really why aren't

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Speaker 1: we hearing more complaints? I think we're probably on the

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Speaker 1: cusp of hearing them, Brian, is the way I put it.

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Speaker 1: I mean, a lot of these currencies are really breaking

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Speaker 1: psychological levels, like the Korean one hasn't been this low

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Speaker 1: since the Asian crisis, the global financial crisis. So I

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Speaker 1: think the pain point is now, and in fact, the

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Speaker 1: first one that we can look forward to will be

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Speaker 1: the Bank of Japan. It will be very interesting to

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Speaker 1: see how much they're willing to tolerate the end down,

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Speaker 1: whatever it is. From the beginning of last year, I

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Speaker 1: suspect we're on the verge of some changes in the

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Speaker 1: in Asia at least, so the dollar move is one thing.

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Speaker 1: We've also seen these big moves in US equities and treasuries.

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Speaker 1: The question we're asking is what asset breaks next after

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Speaker 1: the hawkies FED. Do you look at the likes of

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Speaker 1: perhaps tex stalks, Well, they already have broken. And I

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Speaker 1: must say that, you know, this is a massive update

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Speaker 1: in the dot plot um moving their forecast for the

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Speaker 1: FED funds rate from three point four percent to four

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Speaker 1: point four percent for this year and three point eight

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Speaker 1: to four point six next year. Those are very big numbers.

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Speaker 1: It's not a pivot um. But I would simply say

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Speaker 1: that as much as I'm not going to try to

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Speaker 1: fight the FED, and there's no way we can exit

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Speaker 1: from this central bank hyster area right now because it's

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Speaker 1: going to take about six months before we have much

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Speaker 1: better inflation readings. I don't think the inflation is as

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Speaker 1: terrible as they're making it out to be. I mean,

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Speaker 1: if you look at the market's own assessment of inflation,

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Speaker 1: the break even rate, the difference between inflation protected and

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Speaker 1: nominal yields, that's been basically flat for the last six months.

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Speaker 1: The we can see the manufacturing p m s are

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Speaker 1: still above fifty at least in the United States, and

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Speaker 1: so we look at backlog of work that's falling, delivery

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Speaker 1: times or rising, so durable goods inflations coming down, semi

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Speaker 1: conductors and used car prices, and then the housing which

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Speaker 1: is very important. We also think that's going to start

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Speaker 1: falling in November in a big way. Rent slag, the

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Speaker 1: house prices. So so, I mean our view is that

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Speaker 1: we could see much lower inflation sooner than anticipated and

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Speaker 1: maybe therefore shouldn't panic about this. That feeds into my

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Speaker 1: next question. If you look at their projections, they basically

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Speaker 1: pretty confident that they will eventually get the Fed funds rate.

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Speaker 1: I mean, because of raising the Fed fund rate, they'll

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Speaker 1: get inflation down to around two. But then they have

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Speaker 1: it pausing there. But what's to stop it from keep going,

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Speaker 1: you know, continuing to go to the downside. That's what

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Speaker 1: happens when you get really aggressive. And then does that

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Speaker 1: bring sort of a lot of short term fixed income

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Speaker 1: securities into play? Is a good bet? I think the

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Speaker 1: problem is there two percent forecasts, so that's three years

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Speaker 1: from now, and um I would just say that. Our

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Speaker 1: view is that I'm sorry to say it's wrong. We

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Speaker 1: we do not think it will take that long for

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Speaker 1: inflation to get down to two. We think by next summer.

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Speaker 1: The thing is that you don't want to fight the FED,

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Speaker 1: and so it's really too early to try to do that. Now,

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Speaker 1: I think we want to ask you about China. We've

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Speaker 1: had so many cots to grow forecast for Goldman now

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Speaker 1: cutting twenty three growth forecast as well. Where is some refuge?

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Speaker 1: Is it the likes of perhaps some of the onshore

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Speaker 1: China stocks that have fared better and remained a bit

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Speaker 1: more resilient to meet the worldwide route. Actually, for quite

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Speaker 1: a while I've been recommending h Hong Kong Hong Kong companies,

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Speaker 1: so Hong Kong's part of China. But these are companies

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Speaker 1: that businesses are either in Hong Kong purely, like the

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Speaker 1: electricity utility or the telecom utility, or their businesses are

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Speaker 1: kind of spread out around the world, like the banks

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Speaker 1: and insurance companies, the big international banks and insurance companies

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Speaker 1: that are listed there because they are very very cheap.

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Speaker 1: The utilities have yields of about six or seven percent.

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Speaker 1: And actually we were speaking about currencies earlier and the

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Speaker 1: weakness in Asian currencies, Well, one Asian currency that is

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Speaker 1: pegged to the dollar is the Hong Kong dollar. And

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Speaker 1: so you put that together, I think Hong Kong with

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Speaker 1: good dividend yield is to play to hide in China.

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Speaker 1: And does does housing sort of factor into that as

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Speaker 1: as maybe um something that would question that that call.

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Speaker 1: I mean housing here is starting to get into some

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Speaker 1: dangerously a sort of position where affordability is getting worse. Well,

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Speaker 1: I didn't know that, Brian. I thought house prices have

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Speaker 1: been coming down, but it just seems to be natural

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Speaker 1: that eventually there will be much more public housing in

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Speaker 1: Hong Kong. It's a great necessity, and the Chinese government

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Speaker 1: has been saying that repeatedly and intuitively, if there's more

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Speaker 1: supply than prices should come down. I wouldn't actually be

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Speaker 1: that troubled by Hong Kong house prices coming down. You

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Speaker 1: mentioned the currency moves, and we've been looking at the

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Speaker 1: continued moves by the PBOC there to truly try and

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Speaker 1: defend the one. At what point does this sort of

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Speaker 1: stop and they perhaps just allow the one to to

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Speaker 1: continue to depreciate. Do we see seven spot to five.

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Speaker 1: I think we and I mean I think it's an

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Speaker 1: orderly depreciation as opposed to really trying to draw a

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Speaker 1: line in the sand. And as long as the dollar

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Speaker 1: is rising, and of course it's above a hundred and

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Speaker 1: tens morning, which it's done very rarely over the last

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Speaker 1: few decades, and the FED is in this very hawkish mode,

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Speaker 1: then I think it's natural to expect for the weakness

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Speaker 1: in Asian currencies. And China does have exports going for it.

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Speaker 1: It's one of the few embers left in the economy,

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Speaker 1: and so they need to remain competitive with Japan, Korea

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Speaker 1: and the other countries here in Asia. I think one

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Speaker 1: of the questions I asked you earlier I got a

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Speaker 1: little lost in, but I think one of the ideas

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Speaker 1: is that the FED is being so aggressive that it

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Speaker 1: could bring deflation back into the picture at some point.

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Speaker 1: Are are you thinking that that's not likely or that

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Speaker 1: maybe a couple of years down the road it could

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Speaker 1: be an issue. I I am an agreement with you, Brian,

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Speaker 1: and that's why I mean, I I'll just say it,

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Speaker 1: although I might get in trouble, I kind of think

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Speaker 1: they're bluffing because this is such a hawkish message that,

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Speaker 1: I mean, if they're really serious about doing this stuff,

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Speaker 1: there there's it's very hard to avoid. Uh, you know,

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Speaker 1: the impact on the US consumer, the US housing market,

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Speaker 1: and unemployment. If the FED fund rates gets to four

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Speaker 1: and a half or five percent and a federal government

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Speaker 1: that has over thirty trillion dollars in debt, I don't

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Speaker 1: see how they could really do that. So I I, uh,

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Speaker 1: I think you're right. You know that that if they're

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Speaker 1: really serious about this, um, the economy is in deep trouble,

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Speaker 1: and therefore I just kind of have to extrapolate from

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Speaker 1: that it probably won't get to four and a half

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Speaker 1: or five percent, and that inflation will come down, uh,

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Speaker 1: and we won't be so worried about this three to

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Speaker 1: six months from now. Quick question, is it aggressive FED

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Speaker 1: tightening or the war in Ukraine? The europe energy crossis

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Speaker 1: that is the biggest risk. Well, it's the Fed, I think,

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Speaker 1: although you're right to bring up Ukraine because I do

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Speaker 1: think that the message from Putin two days ago was

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Speaker 1: yesterday sorry, absolutely unambiguous that they will not accept defeat. Yeah, alright, Mark,

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Speaker 1: it is a worrying time. Mark Matthews. We always appreciate

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Speaker 1: your insights. Mark Matthews as head of Asia researcher Julius

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Speaker 1: Bear