WEBVTT - Velocity of Risk Goes Viral 0:00:13.440 --> 0:00:16.480 Hello, and welcome to What Goes Up, a Bloomberg Weekly 0:00:16.520 --> 0:00:19.800 Markets podcast. I'm Sara pan Zach, reporter on the Cross 0:00:19.800 --> 0:00:22.520 Asset team, and I'm Mike Reagan, a senior editor on 0:00:22.520 --> 0:00:24.759 the Markets Team. This week on the show, months have 0:00:24.880 --> 0:00:28.320 calm across global equity markets have finally been shattered. The 0:00:28.320 --> 0:00:32.599 coronavirus continues to spread, with more than eight thousand cases confirmed, 0:00:32.960 --> 0:00:36.879 the death toll rising in China, extending balloonar New Year holiday. 0:00:37.120 --> 0:00:40.400 On top of that of the smp F hundred market 0:00:40.440 --> 0:00:44.320 gap reported earnings, and the Federal Reserve held interest rates steady. 0:00:45.080 --> 0:00:47.640 And sorry, as you pointed out, as a pretty serious week, 0:00:47.680 --> 0:00:50.320 So I'm gonna keep my dumb jokes to a minimum. 0:00:50.360 --> 0:00:52.680 I'm not gonna eliminate them completely. That just means that 0:00:52.680 --> 0:00:54.760 you'll have doubled the dad jokes next week, right right, 0:00:55.320 --> 0:00:57.600 But let's get right to it with our guests here 0:00:57.680 --> 0:00:59.960 joining us first time in the show. We're very happy 0:01:00.040 --> 0:01:03.480 be to have her is Sema Shaw. She's a global 0:01:03.560 --> 0:01:07.399 strategist at Principal Global Investors. Sema, welcome to the show, 0:01:07.600 --> 0:01:10.200 Thank you very much, be happy to be here. And Sarah, 0:01:10.440 --> 0:01:12.520 one thing I noticed on Twitter this week is that 0:01:12.600 --> 0:01:17.039 my feed was full of experts on viruses. Did you 0:01:17.080 --> 0:01:20.080 notice that too? Real experts? Or want to bet they're 0:01:20.120 --> 0:01:23.480 the same experts who were experts on Iran and trade policy. 0:01:23.480 --> 0:01:26.640 It's amazing the way Twitter cultivates these, uh, these one 0:01:26.640 --> 0:01:28.920 size fits all experts for you. It's amazing you can 0:01:28.920 --> 0:01:30.760 fit in being an expert within a couple of characters 0:01:30.760 --> 0:01:32.880 on Twitter, and all of a sudden you're hailed. And 0:01:32.920 --> 0:01:34.959 you know, I know they're experts because they have charts. 0:01:35.720 --> 0:01:37.240 You know you're a real expert if you well, are 0:01:37.280 --> 0:01:39.440 they verified? I think that's what really matters. Clearly I'm 0:01:39.480 --> 0:01:42.000 being sarcastic, but my point is that I craved to 0:01:42.040 --> 0:01:43.800 hear from someone who really knew what they were talking 0:01:43.800 --> 0:01:46.720 about as far as the pharmaceutical and the health care industry. 0:01:46.760 --> 0:01:50.240 So my old pal from Bloomberg Opinion, Max Nisson Opinion 0:01:50.240 --> 0:01:53.360 calumnists writing about pharmaceuticals and healthcare. Max, Welcome to the show. 0:01:53.520 --> 0:01:56.080 Thanks so much for having me. So, Sima, let's start 0:01:56.080 --> 0:01:57.920 with you. You You know, I was reading one of your 0:01:57.960 --> 0:02:02.480 recent notes that obviously came out before the coronavirus and 0:02:02.640 --> 0:02:06.840 some of the highlights, um where you preferred international equities 0:02:07.120 --> 0:02:11.520 over US equities. Uh, you liked EM debt over other 0:02:11.680 --> 0:02:16.640 fixed uh income assets, cyclicals you liked, and you you've 0:02:16.800 --> 0:02:19.800 sort of concluded that investors should be fully invested. You know, 0:02:19.800 --> 0:02:22.080 there's that old commercial though that when the world comes 0:02:22.080 --> 0:02:24.639 at you fast, and now we have this sort of 0:02:25.000 --> 0:02:26.400 I hate to call it a black Swan event, but 0:02:26.440 --> 0:02:28.320 I guess you really could call it a black swan, 0:02:28.400 --> 0:02:31.720 this coronavirus that is sort of causing people to rethink 0:02:31.840 --> 0:02:36.880 all of their thoughts that they had leading into Is 0:02:36.919 --> 0:02:38.560 that happening to you at all? Are you sort of 0:02:38.600 --> 0:02:43.000 still sticking with your your original strategy, Uh, despite all 0:02:43.000 --> 0:02:46.320 the uncertainty around the fires. Yeah, absolutely, I think that. 0:02:46.400 --> 0:02:48.160 I mean, first of all, this is very very early days. 0:02:48.200 --> 0:02:50.680 We don't know how this is going to be transitioning through. 0:02:50.840 --> 0:02:52.960 But actually I think a lot of the themes are 0:02:52.960 --> 0:02:55.919 still very relevant, and specifically with emerging markets. We actually 0:02:55.919 --> 0:02:59.280 like emerging emerging Asia, um, which is you know, maybe 0:02:59.320 --> 0:03:01.040 there's a lot of question to mark, say without but 0:03:01.080 --> 0:03:03.079 if anything, you know, from a it's a long term 0:03:03.120 --> 0:03:06.280 strategic positioning that we see the macro story is still 0:03:06.280 --> 0:03:08.960 pretty strong of cool sort of concerns about the growth outlook, 0:03:09.440 --> 0:03:12.520 but potentially you could see better entry points this year. 0:03:12.880 --> 0:03:14.880 I'm here, but you know you have to see how 0:03:14.919 --> 0:03:17.400 this is progressing. That may well change China growth out 0:03:17.440 --> 0:03:19.600 like and then it put things into questions. Right, we've 0:03:19.600 --> 0:03:23.200 really seen emerging markets in Asian markets really taken absolute hit. 0:03:23.200 --> 0:03:25.600 You look at em for example, which is the Ice 0:03:25.600 --> 0:03:28.079 Shares ms c I Emerging Markets Index, which is of 0:03:28.120 --> 0:03:30.400 its market cap in China at a new fresh load 0:03:30.480 --> 0:03:33.600 versus the S and P since two thousand and three. Um. 0:03:33.600 --> 0:03:35.840 But I also find it very interesting because last week 0:03:35.840 --> 0:03:39.240 we heard a lot of comparisons about the coronavirus that 0:03:39.280 --> 0:03:41.440 we're dealing with today two stars, and all of a sudden, 0:03:41.480 --> 0:03:44.960 this week I've heard from many people, read many research 0:03:45.000 --> 0:03:48.520 notes about how now is different and you talk about 0:03:48.520 --> 0:03:52.440 how risk velocity is elevated. Now, how now when you 0:03:52.480 --> 0:03:56.360 are dealing with an instance of this sort or a 0:03:56.440 --> 0:04:00.360 global health epidemic or any other worry or is it 0:04:00.400 --> 0:04:02.440 can be heightened. Can you maybe walk us through where 0:04:02.440 --> 0:04:05.400 that is? Yeah? Sure, So we point to three different 0:04:05.440 --> 0:04:07.920 areas where you would expect that velocity of risk to 0:04:07.960 --> 0:04:10.040 be quicker in this kind of instance. And the first 0:04:10.080 --> 0:04:12.520 thing is asset valuations. You know, they are a lot 0:04:12.560 --> 0:04:14.600 more expensive than sunny what we saw in this kind 0:04:14.640 --> 0:04:17.280 of the two thousand three episode, which means that as 0:04:17.320 --> 0:04:20.760 we came into risk, assets were already very vulnerable to 0:04:20.800 --> 0:04:23.080 any kind of shift in global sentiment, which is exactly 0:04:23.120 --> 0:04:25.920 what we're seeing today. So you could see sharper pullbacks 0:04:25.920 --> 0:04:28.080 in the market. And then the second thing, which to 0:04:28.120 --> 0:04:30.679 me is probably the most interesting, is a social media impact. 0:04:31.000 --> 0:04:33.120 So rewind to two thousand and three, you would see 0:04:33.160 --> 0:04:36.800 about a hundred thousand tweets per day. Today you see 0:04:36.839 --> 0:04:39.440 that amount in just one single minute, So that transitioning 0:04:39.440 --> 0:04:42.280 of fear and knowledge is so much faster again, So 0:04:42.320 --> 0:04:45.400 that's seeing that transition to portfolios quickly. And the third 0:04:45.440 --> 0:04:48.640 thing is is probably the most important, is the global 0:04:48.640 --> 0:04:51.520 supply chain. It's a lot more complex. Um, it's a 0:04:51.520 --> 0:04:54.400 lot more intricate. So even companies that don't necessarily come 0:04:54.400 --> 0:04:57.120 across like they have a direct exposure to China, somewhere 0:04:57.160 --> 0:05:00.520 along the way, they have exposure. Boy, sorry, I wish 0:05:00.520 --> 0:05:02.640 I had met Sima. Earlier this week, I was writing 0:05:02.640 --> 0:05:04.679 a Business Week story where I made that exact point 0:05:04.720 --> 0:05:08.400 that the valuation difference between now and two thousand and three. 0:05:08.400 --> 0:05:10.240 Is that is the big difference. Very different. I would 0:05:10.240 --> 0:05:12.360 have loved to quote quote you, but UM, just to 0:05:12.480 --> 0:05:15.839 trill down back to some of you know, your original 0:05:16.000 --> 0:05:20.359 strategy ideas for the year, UM, walk us through. Uh 0:05:20.480 --> 0:05:23.640 what you're thinking about international equities? Well, why now might 0:05:23.680 --> 0:05:26.200 be the time for them to outperform the US. UM. 0:05:26.320 --> 0:05:28.719 We've heard heard this from some other smart people, and 0:05:28.760 --> 0:05:32.880 I'm just curious. Um, you know your rationale for for 0:05:32.880 --> 0:05:35.040 approaching it that way? Yeah? Sure, you know, we came 0:05:35.040 --> 0:05:37.200 into we have a view that there's going to be 0:05:37.279 --> 0:05:40.800 global growth stabilization and an opton so not particularly strong. 0:05:41.040 --> 0:05:42.920 But in that kind of environment, you would actually tend 0:05:43.000 --> 0:05:45.800 to expect more of those those emerging markets UM to 0:05:45.880 --> 0:05:48.320 do well. Now if you even compare Europe, you know, 0:05:48.400 --> 0:05:50.400 I did have a very good year last year, the 0:05:50.400 --> 0:05:54.360 best year in about a decade, but it's still somewhat undervalued. 0:05:54.440 --> 0:05:57.520 I mean, relative valuations are not as attractive UM as 0:05:57.560 --> 0:05:59.400 a number of varias, but it is definitely more attractive 0:05:59.440 --> 0:06:02.200 than the US. So that means that coming into this year, 0:06:02.240 --> 0:06:04.520 as long as you have a growth outlook which is positive, 0:06:04.960 --> 0:06:06.680 we know that central bank stimulus is going to be 0:06:06.720 --> 0:06:09.560 in play, and this potential for fiscal stimulus in Europe. 0:06:09.880 --> 0:06:11.839 Plus we also have taken out a lot of the 0:06:11.839 --> 0:06:13.520 politic caaris that have been weighing on Europe for a 0:06:13.600 --> 0:06:16.360 number of years. So to me, that means valuations and 0:06:16.520 --> 0:06:20.039 fundamentals are all more attractive. Same thing with emerging markets, 0:06:20.040 --> 0:06:22.560 you know, aside from what we've been seeing recently, the 0:06:22.640 --> 0:06:25.039 growth outlook is good given the reduction of the newest 0:06:25.080 --> 0:06:27.960 China trade tensions, there's room for monaty stimulus and the 0:06:28.120 --> 0:06:30.640 room for fiscal stimulus. So for us, that means international 0:06:30.680 --> 0:06:33.039 equities look more attractive. So, like you said, it is 0:06:33.080 --> 0:06:36.120 it is early days and we need to see how 0:06:36.640 --> 0:06:41.279 this coronavirus actually does develop and then eventually affect economic 0:06:41.400 --> 0:06:44.320 growth growth. But we've already seen some estimates. I know, 0:06:44.320 --> 0:06:48.000 Bloomberg Economics is estimating that it's possible that China's GDP 0:06:48.120 --> 0:06:50.040 falls to four and a half percent. Sure, still four 0:06:50.080 --> 0:06:53.320 and a half percent growth, but low for China's standards 0:06:53.360 --> 0:06:57.400 as an emerging market country and a dominant global player nowadays. 0:06:58.120 --> 0:07:01.760 Do you have to factor in the possibility that maybe 0:07:01.800 --> 0:07:06.320 this black Swan event is wide enough that it does 0:07:06.720 --> 0:07:10.520 derail the emerging market picture, at least in Asia and 0:07:10.560 --> 0:07:12.920 in China, and what would have to happen to get 0:07:12.960 --> 0:07:15.560 you to the point where you start reconsidering. I think 0:07:15.640 --> 0:07:17.520 that's really the key point and probably the reason why 0:07:17.520 --> 0:07:20.040 you have seen markets react in the way that they 0:07:20.040 --> 0:07:22.240 have is because it does if it were to persist, 0:07:22.240 --> 0:07:25.240 to put a lot of the global growth outlook into question. 0:07:25.520 --> 0:07:28.400 So you know, again, this year global growth should be okay, 0:07:28.400 --> 0:07:30.200 we don't. We were never expecting it to be like 0:07:30.200 --> 0:07:33.000 twenty six where China really booms growth around the world, 0:07:33.360 --> 0:07:35.480 but it was putting a bottom kind of a floor 0:07:35.560 --> 0:07:38.280 under European growth and it was lifting merging Asia. So 0:07:38.320 --> 0:07:40.760 if you work to see China growth really persisting beyond 0:07:40.760 --> 0:07:42.559 that really sharp Q and dip that I think everyone 0:07:42.600 --> 0:07:44.880 is expecting, but into Q two and certainly into the 0:07:44.920 --> 0:07:48.240 second half, then you know, you start to take away 0:07:48.280 --> 0:07:50.800 the foundations of that global graph outlook. And the other 0:07:50.840 --> 0:07:53.600 thing is is you know where is the China hits 0:07:53.600 --> 0:07:56.200 So we know from the consumer side that in stars 0:07:56.280 --> 0:07:58.400 it bounces back very quickly. People just differ a lot 0:07:58.440 --> 0:08:02.840 of their purchases, people go back to the airlines, etcetera. If, however, 0:08:02.880 --> 0:08:04.880 it leaks into the second half of the year and 0:08:04.920 --> 0:08:07.240 you start to see the production size, so you see 0:08:07.480 --> 0:08:11.360 factories staying closed. Then those global big firms that we 0:08:11.400 --> 0:08:13.560 all know of who at the moment have enough stock 0:08:13.560 --> 0:08:16.240 paths to to to deliver to their customers, if they 0:08:16.240 --> 0:08:18.640 start running out, that's when you start to see a 0:08:18.720 --> 0:08:20.720 real potential growth. And that's when we would be worried. 0:08:21.760 --> 0:08:23.600 You know, seem I was a English major, not a 0:08:23.600 --> 0:08:26.360 finance major, so I'm prone to think in bad analogies, 0:08:26.560 --> 0:08:31.280 and I keep thinking about this as sort of the way, uh, 0:08:31.840 --> 0:08:35.760 you'll have like a bad, nasty cold winner that sort 0:08:35.760 --> 0:08:40.040 of depresses g DP, maybe hurts some companies earnings. UM. 0:08:40.160 --> 0:08:42.680 Maybe some other companies use it as an excuse for 0:08:42.720 --> 0:08:46.000 their under performance, But eventually the market is very good 0:08:46.040 --> 0:08:49.280 at just sort of looking past those soft spots caused 0:08:49.320 --> 0:08:54.640 by say a nasty winner full of blizzards in the US. UM. 0:08:54.679 --> 0:08:56.840 And I'm wonder if if a similar thing could happen 0:08:56.920 --> 0:08:59.080 well as you say, you know, could the market just 0:08:59.200 --> 0:09:02.720 kind of look passed this episode, especially if the sort 0:09:02.760 --> 0:09:06.480 of the rate of growth and the infection slows down. UM. 0:09:07.040 --> 0:09:08.360 Is that a safe way to look at it? Do 0:09:08.360 --> 0:09:11.040 you think or is there the danger that uh, as 0:09:11.080 --> 0:09:12.920 you said, if it bleeds into the second quarter, is 0:09:12.960 --> 0:09:16.600 there something more long lasting damage that can be done, 0:09:17.240 --> 0:09:20.439 uh say to you know, uh, the credit of some 0:09:20.440 --> 0:09:24.040 some vulnerable companies, that sort of thing. If this sort 0:09:24.040 --> 0:09:27.440 of lasts a bit longer than we then we hope anyway, 0:09:27.760 --> 0:09:30.760 that's that's exactly it. So as of today, the way 0:09:30.800 --> 0:09:33.640 we sit is UM. You know, assuming a photos a 0:09:33.640 --> 0:09:37.120 point where it peaks relatively soon and then UM starts 0:09:37.120 --> 0:09:38.520 to fade out, then we would expect the market to 0:09:38.520 --> 0:09:41.520 bounce back. Now, going into again this year, with osset 0:09:41.559 --> 0:09:45.079 markets so value so value so highly and with growth 0:09:45.160 --> 0:09:47.480 solid but not very very strong, we knew that the 0:09:47.520 --> 0:09:50.000 market was really vulnerable to these kind of political shifts 0:09:50.440 --> 0:09:52.400 UM and already we've seen the US and runt right 0:09:52.400 --> 0:09:55.480 attention is already not markets, coronavirus another one, and we 0:09:55.520 --> 0:09:57.679 may well see this going through the year. But as 0:09:57.679 --> 0:09:59.480 long as there's no recession on the horizon and we 0:09:59.520 --> 0:10:02.240 know the central makes is still there plugging in that liquidity, 0:10:02.440 --> 0:10:05.040 then we would expect that to be some recovery. It 0:10:05.120 --> 0:10:07.920 changes when you have a more sustainable impact on the 0:10:07.920 --> 0:10:10.959 growth outlook, which is really starting to hurt companies from 0:10:10.960 --> 0:10:13.680 a production standpoint. So for me, that's your that's where 0:10:13.679 --> 0:10:16.400 it tilts into the more dangerous side. So you mentioned 0:10:16.440 --> 0:10:19.640 central banks providing liquidity, and we did have a BOE 0:10:19.679 --> 0:10:21.840 meeting this week, we did hear from the Federal Reserve. 0:10:22.280 --> 0:10:26.320 Is there anything that Jerome Powell said or that the 0:10:26.360 --> 0:10:28.000 FED said in the statement that he said in the 0:10:28.040 --> 0:10:33.640 press conference thereafter, um, that you found interesting. I think 0:10:33.679 --> 0:10:36.000 the market reaction was quite a bit, quite interesting. We 0:10:36.000 --> 0:10:38.920 saw a very steep bond rally, we see stocks start 0:10:39.000 --> 0:10:40.920 to sell off. I heard a couple of people try 0:10:41.000 --> 0:10:44.280 to extrapolate that to me that maybe markets are are 0:10:44.360 --> 0:10:47.199 trying to see what the FED thinks about the growth outlook. 0:10:47.200 --> 0:10:49.600 Maybe the growth outlook isn't as strong as people had 0:10:49.600 --> 0:10:52.880 thought previously. Do you think you can extrapolate that from 0:10:52.880 --> 0:10:55.559 what we saw or not quite yet? Definitely, not quite yet. 0:10:55.640 --> 0:10:56.960 I mean, I think it just goes to show that 0:10:57.000 --> 0:11:00.679 the markets possession with the Fed still lives, even though 0:11:00.720 --> 0:11:02.520 you know, we have a fairly good idea about what 0:11:02.559 --> 0:11:04.400 they'll be doing for the rest of the year. There's 0:11:04.440 --> 0:11:06.200 a lot to try and read into it. I don't 0:11:06.320 --> 0:11:09.200 actually would give Powell ten out of ten for giving 0:11:09.200 --> 0:11:12.000 a really good, clear communication message. And I wouldn't have 0:11:12.040 --> 0:11:15.840 really expected to the market to be so disrupted. You know, 0:11:16.280 --> 0:11:20.560 I'm interested in that notion. You talk about emerging Asia debt. 0:11:21.200 --> 0:11:24.440 How does the trade war sort of fit into all this? 0:11:24.559 --> 0:11:26.640 I mean, I obviously that that's such a wild card 0:11:26.679 --> 0:11:29.720 with the coronavirus. I mean, can China really sort of 0:11:29.760 --> 0:11:33.319 meet its uh it's requirements of the trade deal? And 0:11:33.600 --> 0:11:36.240 how will the US? Will they cut them some slack? 0:11:36.320 --> 0:11:38.840 Will they? You know, I think most of us believe 0:11:38.880 --> 0:11:42.240 they probably won't. UM. Some of the comments we've seen 0:11:42.280 --> 0:11:46.880 from Lightheiser and other officials seemed to indicate that, sorry, 0:11:46.880 --> 0:11:50.199 you're not off the hook just because of this issue. Um, 0:11:50.520 --> 0:11:53.439 does that make the rest of Asia sort of a 0:11:53.480 --> 0:11:56.920 little more attractive than China? It does in some ways. 0:11:57.080 --> 0:11:59.080 And you know, one of the good things that we 0:11:59.120 --> 0:12:01.720 did see about Asia even last year was a number 0:12:01.720 --> 0:12:04.360 of these countries, you know, Asia is more than than China, 0:12:04.400 --> 0:12:07.160 and a number of these countries such as Indonesia Malaysia, 0:12:07.200 --> 0:12:09.360 really try to make some structural changes that meant that 0:12:09.400 --> 0:12:12.439 they could benefit from supply chain diversion. And I think 0:12:12.480 --> 0:12:14.800 investors should really be aware that these are these are 0:12:14.920 --> 0:12:18.679 long term beneficial impacts, so there is potential for them 0:12:18.679 --> 0:12:21.640 to continue to benefit. UM. I think with how this 0:12:21.720 --> 0:12:24.960 progresses with the US China trade tensions, UM, it really 0:12:25.000 --> 0:12:27.599 depends on the electorate in election. Yet the government is 0:12:27.600 --> 0:12:29.320 going to listen to the electorate. If they feel like 0:12:29.320 --> 0:12:31.800 the US is going easy on China, then I think 0:12:31.800 --> 0:12:34.120 we should expect those tensions to return. If they feel like, 0:12:34.320 --> 0:12:36.440 actually we should cut them some sluck, then I think 0:12:36.480 --> 0:12:38.839 everything fades out. Where do you stand on the growth 0:12:38.920 --> 0:12:42.080 versus value debacle? Just because typically I feel like when 0:12:42.120 --> 0:12:44.040 we speak with someone and they are more so on 0:12:44.080 --> 0:12:47.280 the international equity side, it's a valuation question and typically 0:12:47.559 --> 0:12:51.040 within the US are globally they're favoring value stocks as well. 0:12:51.080 --> 0:12:53.560 But this month I find it very interesting, and I 0:12:53.600 --> 0:12:56.000 wonder if you are on the value side, if it's 0:12:56.120 --> 0:12:59.320 testing your patients, because if you look at SMP five 0:12:59.400 --> 0:13:03.040 hundred in excess that separate growth versus value companies, we've 0:13:03.080 --> 0:13:06.320 actually now seen the strongest month for growth versus value 0:13:06.320 --> 0:13:08.480 since all the way back in early two thousand nine, 0:13:08.600 --> 0:13:11.320 before we saw the bottom back in March of oh nine. 0:13:12.000 --> 0:13:15.400 So can you maybe walk us through your thought process there. Yeah, absolutely, 0:13:15.480 --> 0:13:19.240 you know, we we like I like value over momentum. 0:13:19.280 --> 0:13:22.720 I think of it more from a technical perspective. So 0:13:23.080 --> 0:13:25.560 the main reason being that, yes, we see an up term, 0:13:25.600 --> 0:13:29.800 but because it's not particularly strong, the fundamental case for 0:13:29.840 --> 0:13:33.160 shifting that into that rotation isn't necessarily there. But when 0:13:33.200 --> 0:13:36.480 you have such a dislocation in valuations, it's almost rude 0:13:36.520 --> 0:13:39.600 not to start increasing your exposure to value because when 0:13:39.600 --> 0:13:41.280 that pop comes, you don't want to be on the 0:13:41.280 --> 0:13:43.400 wrong side of it. But having said that, is it 0:13:43.440 --> 0:13:45.480 going to be a sustainable rotation when it comes through. 0:13:45.559 --> 0:13:48.600 Probably not until you get a strong growth pickup, and 0:13:48.640 --> 0:13:51.120 that may not be till the next cycle. Like you 0:13:51.160 --> 0:13:56.960 call it a debacle, I hear about it all the time. 0:13:58.200 --> 0:14:01.560 I attribute my underperformance to the debacle of the debacle 0:14:01.600 --> 0:14:06.040 of growth versus value. Uh See. I think a lot 0:14:06.080 --> 0:14:10.680 of US investors, UM, when you start talking about international equities, 0:14:10.760 --> 0:14:14.840 they get um a little nervous about sort of bottoms 0:14:14.920 --> 0:14:17.920 up stock picking in the rest of the world. Um, 0:14:17.960 --> 0:14:21.080 they're just not as familiar with sort of you know, 0:14:21.120 --> 0:14:24.680 the reporting requirements and the and the research involved in 0:14:25.240 --> 0:14:29.040 picking uh. Individual international companies, especially E. M. So how 0:14:29.080 --> 0:14:33.680 would you sort of express abolishness uh in international equities? 0:14:33.720 --> 0:14:35.480 Would it be in sort of E t F that 0:14:35.600 --> 0:14:40.360 track certain nations were certain say E M as a whole. 0:14:40.680 --> 0:14:44.320 You know, how how how would one US investor uh 0:14:44.560 --> 0:14:48.720 sort of take advantage of international performance? You know, And 0:14:48.760 --> 0:14:50.960 that that's a really really important question going into this 0:14:51.040 --> 0:14:54.640 year because yes, the overall emerging market story is quite positive, 0:14:54.840 --> 0:14:57.560 but you absolutely need to know your country. Um, if 0:14:57.600 --> 0:14:59.600 you look back over the last kind of ten fifteen years, 0:14:59.640 --> 0:15:02.080 a lot of the emerging markets have pursued very sensible 0:15:02.760 --> 0:15:05.640 macro policies, so you know, they've started to take account 0:15:05.720 --> 0:15:07.840 or you don't want too many too much debt imbalance 0:15:07.880 --> 0:15:10.400 and you won't have low inflation, and they've done really well. 0:15:10.680 --> 0:15:12.520 And now going into this yet a lot of them 0:15:12.560 --> 0:15:15.600 have space to cut interest rates further, and some have 0:15:15.720 --> 0:15:18.440 space to do fiscal stimulus. Others don't have room to 0:15:18.440 --> 0:15:20.400 do fiscal stimulus, but they're going to do it anyway, 0:15:20.400 --> 0:15:23.480 because now what we're seeing is a lot of governments 0:15:23.480 --> 0:15:26.280 are starting to put to put their domestic politics ahead 0:15:26.400 --> 0:15:29.800 of that macro stability, and that's relatively new again, So 0:15:29.880 --> 0:15:31.520 you have to know your countries you have to know 0:15:31.560 --> 0:15:34.440 where those domestic hotspots are going to come about, and 0:15:34.480 --> 0:15:36.880 this is kind of where active management and stockpicking becomes 0:15:36.960 --> 0:15:40.080 very important. Are there any individual countries that you're really 0:15:40.080 --> 0:15:42.440 pounding the table on in any that you're saying, well, 0:15:42.600 --> 0:15:44.760 keep me away, but but don't pay on the table 0:15:44.800 --> 0:15:50.200 here because it will hurt people's years reverberates like yeah, okay, 0:15:50.640 --> 0:15:54.240 you know again coronavirus aside, If we're looking out over 0:15:54.280 --> 0:15:57.440 the long term, we like some parts of South Korea, 0:15:58.400 --> 0:16:02.480 especially even the chipmakers. We actually like China consumer discretionary, 0:16:02.520 --> 0:16:04.400 which I know, as we sit today it looked at 0:16:04.400 --> 0:16:05.920 like a tough one, but hopefully we're going to get 0:16:05.920 --> 0:16:08.720 a good entry point. And we still like Brazil because 0:16:08.760 --> 0:16:11.320 from a macro perspective it's a little bit more sensible 0:16:11.360 --> 0:16:13.880 than than many of the others. There are areas such 0:16:13.920 --> 0:16:16.560 as Turkey in South Africa which from evaluation perspective do 0:16:16.600 --> 0:16:19.080 look really attractive, but every time that there is any 0:16:19.160 --> 0:16:23.000 kind of upheaval, they will be hit first. What's behind 0:16:23.040 --> 0:16:26.080 the chipmaker bullishness? I mean, I know I've throwned on 0:16:26.160 --> 0:16:28.800 and on about five G being just a really big 0:16:28.840 --> 0:16:32.160 game changer coming up and artificial intelligence all that is 0:16:32.200 --> 0:16:34.080 that is that part of it or is it? Is 0:16:34.120 --> 0:16:37.680 it more sort of a world evaluation story. It's more 0:16:37.720 --> 0:16:39.840 of the former. You know, the kind of the five 0:16:39.920 --> 0:16:42.920 G story is there. It's not going away. Um. You 0:16:42.960 --> 0:16:45.800 know they chipmakers have been beaten up before, but they 0:16:45.880 --> 0:16:48.040 kind of rebound. And also there's really a boom and 0:16:48.040 --> 0:16:50.440 bust type of trade it is. And if you expect 0:16:50.520 --> 0:16:52.880 to see growth and even a growth up to and then, 0:16:53.120 --> 0:16:55.920 you should see chipmakers do well. I don't necessarily believe 0:16:55.960 --> 0:16:57.520 that it's not going to be hit by tensions, and 0:16:57.600 --> 0:17:00.560 especially on the US China stuff. One might be a 0:17:00.560 --> 0:17:19.200 tougher year, but at least be positive. Max. Let's let's 0:17:19.200 --> 0:17:21.919 bring you into this because you know, all eyes have 0:17:22.040 --> 0:17:24.639 turned to the coronavirus this week. To me, one of 0:17:24.680 --> 0:17:27.119 the most amazing things is this notion that China is 0:17:27.160 --> 0:17:29.760 going to build a hospital in like two weeks, two 0:17:29.800 --> 0:17:31.760 to three weeks. Uh, you know, who knows if they'll 0:17:31.800 --> 0:17:33.359 meet that goal. But if they get it done in 0:17:33.440 --> 0:17:35.680 a month, I'll still be impressed. But you know, as 0:17:35.720 --> 0:17:39.679 we've talked about before, Uh, it's not so simple in 0:17:40.040 --> 0:17:45.040 the pharmaceutical world as far as getting a vaccine for 0:17:45.080 --> 0:17:47.840 this virus on the market. Talk us through, like what 0:17:47.960 --> 0:17:52.480 is a realistic timeline to actually think of a vaccine 0:17:52.520 --> 0:17:55.840 getting through the whole clinical trial phase and onto the 0:17:55.880 --> 0:17:59.080 market with a situation like this. Yeah, absolutely, I mean 0:17:59.200 --> 0:18:03.040 for actually getting you know, a quick response vaccine to 0:18:03.119 --> 0:18:06.679 the market for a novel epidemic. There isn't really a 0:18:06.720 --> 0:18:09.439 good precedent that. The best one I can point to 0:18:09.600 --> 0:18:12.640 is with the Bola, where it took not not one 0:18:12.680 --> 0:18:16.879 outbreak but several to actually eventually get a vaccine to market. 0:18:17.240 --> 0:18:19.280 There's this whole sort of saga where you know, a 0:18:19.720 --> 0:18:23.480 public Canadian lab developed what looked like a promising vaccine, 0:18:23.760 --> 0:18:26.720 it got licensed to a company than another company, the 0:18:26.760 --> 0:18:29.159 company never developed it, and then when there was a 0:18:29.160 --> 0:18:32.000 new outbreak, the w h O more or less forced 0:18:32.200 --> 0:18:35.720 this smaller biotech to license the vaccine to MRK in 0:18:35.760 --> 0:18:38.920 two thousand fourteen, and then the next step, the next 0:18:38.960 --> 0:18:41.480 outbreak rolled around. Finally they were able to get it 0:18:41.480 --> 0:18:45.520 into the fields that beyond just the development. Actually getting 0:18:45.520 --> 0:18:48.159 a vaccine into kind of a hot zone and and 0:18:48.359 --> 0:18:50.840 running a clinical trials its own side of challenges, and 0:18:50.840 --> 0:18:54.439 then finally only actually approved in two thousand nineteen. So 0:18:54.440 --> 0:18:57.119 that's that's the good case. That's sort of a multi 0:18:57.200 --> 0:18:59.960 year But in terms of you know, if for the 0:18:59.800 --> 0:19:03.200 in this case obvious trying to speed up the development 0:19:03.200 --> 0:19:06.680 pathway from that, UM, I think you've seen at least 0:19:06.720 --> 0:19:09.520 one company saying that they're hoping to get into sort 0:19:09.520 --> 0:19:12.960 of initial human trials by April within a few months. 0:19:12.960 --> 0:19:15.760 It's a company called Maderna using sort of this new 0:19:15.800 --> 0:19:19.480 modern approach to rapidly creating vaccines and then from there, 0:19:19.640 --> 0:19:21.399 um you know, that would just be your first in 0:19:21.480 --> 0:19:24.600 human safety tests. From there you get to larger trials 0:19:24.720 --> 0:19:27.240 and then actually figuring out how to manufacture the thing 0:19:27.280 --> 0:19:31.160 at scale, which Maderna probably can't do. UM. So we're 0:19:31.200 --> 0:19:35.360 looking at a timeline of years rather than months. Unfortunately, 0:19:35.640 --> 0:19:38.960 and obviously all clinical trials don't succeed, you know, is 0:19:38.960 --> 0:19:41.640 there most of them don't? So is is there any 0:19:42.080 --> 0:19:44.679 you know, notion to think that maybe a vaccine uh 0:19:44.960 --> 0:19:47.880 for a virus like this would have a greater sort 0:19:47.880 --> 0:19:50.480 of success rate in clinical trials just you know, because 0:19:50.520 --> 0:19:53.520 there's so much effort being thrown out. I would hope so, 0:19:53.600 --> 0:19:55.720 and and it depends on who exactly it's going to 0:19:55.800 --> 0:19:58.240 come from. You know, there's a lot of uncertainty o there, 0:19:58.240 --> 0:20:01.199 whether Maderna's you know not will approach of work. A 0:20:01.240 --> 0:20:03.639 bunch of smaller companies even than Madurana working on it, 0:20:03.840 --> 0:20:06.400 and then over the longer term you have Johnson and Johnson, 0:20:06.720 --> 0:20:10.479 one of the few remaining large pharmaceutical companies that actually 0:20:10.520 --> 0:20:13.639 has a big vaccine unit. They're working on something to 0:20:13.960 --> 0:20:16.439 on some you know, a nine month to a year timeline, 0:20:16.920 --> 0:20:19.400 I think was the one they mentioned that probably has 0:20:19.560 --> 0:20:22.080