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Speaker 1: Our guest Kelvin Tay Global Wealth Management Regional c I

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Speaker 1: O at UBS. Well, the furrowed brow probably at the FED.

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Speaker 1: All of a sudden you've got this sort of gathering

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Speaker 1: economic weakness in the data, and it might make the

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Speaker 1: Fed's path a little bit more difficult. But at least

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Speaker 1: the signs at the moment are Kelvin that the FED

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Speaker 1: wants to stay tough on inflation. Is that what you're expecting? Absolutely?

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Speaker 1: And I think if we look at where enclosion is

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Speaker 1: at the moment, it is still very, very uncomfortably high,

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Speaker 1: and I think we need core PC to actually come

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Speaker 1: up to more polatical levels before the Federal Reserve would

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Speaker 1: even think about um stopping or pausing the red height

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Speaker 1: cycle DIA and barking on right now. What does all

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Speaker 1: of that mean then for risk assets when we're looking

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Speaker 1: at this potentially hawkish FED and whether or not we're

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Speaker 1: going to continue to see this strengthen the dollar too. Yeah.

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Speaker 1: I think the last couple of days have been quite

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Speaker 1: telling because from the end of June tune two, I

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Speaker 1: would say last week there's been a rotation out of

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Speaker 1: from value into growth stocks again, because I think the

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Speaker 1: market was basically saying that there could perhaps be a

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Speaker 1: pivot towards a more doublished policy from the federal Reserve.

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Speaker 1: But I think the market was actually wrong in that sense. Um,

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Speaker 1: if you look at where the tenure us right now,

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Speaker 1: where where where they are at the moment, they've actually

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Speaker 1: gone back up to above three and that has actually

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Speaker 1: put a dampen on that three and its executely resulted

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Speaker 1: in the SMP weakening in the last week as well.

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Speaker 1: And I do think that this is probably the path

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Speaker 1: that we're actually uh that the stock markets were actually

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Speaker 1: emb back on because of the fact that I do

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Speaker 1: think that where rates are concerned, there's certainly a lot

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Speaker 1: more room for the rates to climb. It's a little

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Speaker 1: bit puzzling the rally that we saw in the US.

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Speaker 1: It was very strong rallying up from the June lows

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Speaker 1: to what we saw before this recent sell off. The

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Speaker 1: breadth of the rally was, you know, something you have

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Speaker 1: to take into consideration. And also the fact that it

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Speaker 1: went up fifty percent. That's normally once you go up

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Speaker 1: fifty from lows, you don't usually go back to revisit. Uh.

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Speaker 1: You know, do you think that the equity market is

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Speaker 1: is steady here already think that there are risks that

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Speaker 1: we could see a big drop. Yeah, I think. I

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Speaker 1: think the risks are there for the market to actually

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Speaker 1: a weekend further from here, for a couple of reasons. Firstly,

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Speaker 1: the okay, let's let's talk about why the markets really

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Speaker 1: in the first place. But I think that's largely because

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Speaker 1: of the fact that cash positions were at an all

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Speaker 1: time high over the last twenty years, and on top

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Speaker 1: of that, equity positioning was actually very very low relative

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Speaker 1: to the other periods as well. So I think from

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Speaker 1: a positioning perspective, there was very little to actually have

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Speaker 1: the markets moved down further when we came to the

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Speaker 1: end of June. But since then things have actually changed. Now,

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Speaker 1: if you look at the evaluations of the SMP for hundred,

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Speaker 1: there's certainly not cheap. I mean, we're closer to about

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Speaker 1: eighteen and a half the night in times right now,

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Speaker 1: whereas the twenty years historical leverage has always been at

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Speaker 1: about fifteen and a half times right now. That's one thing.

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Speaker 1: On top of that, you have a higher rate of

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Speaker 1: you have a higher treasury you right now, if you

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Speaker 1: you have higher interest rates at the moment, and that

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Speaker 1: certainly actually increases the equity rice premium. So that means

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Speaker 1: that again from as an allocation perspective, um that has

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Speaker 1: actually made the high the high grade bonds um more

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Speaker 1: attractive relative to the equities market. Now, the third thing

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Speaker 1: we need to consider is the quantitative tightening that the

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Speaker 1: Federals has actually embarked on that's gone on for three months.

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Speaker 1: We're not seeing any impact, and it's largely because the

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Speaker 1: duration risk has not been transferred onto the markets at

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Speaker 1: this point in time. When it comes to the China story,

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Speaker 1: I mean we've still got a lot of policy support

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Speaker 1: coming through here and this week steps to stabilize the

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Speaker 1: property market, it didn't really aid sentiments so much. When

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Speaker 1: do we kind of start to see a turnaround here.

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Speaker 1: I think you need the property market actually stabilized. That's

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Speaker 1: one thing. You need demand for properties to actually pick

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Speaker 1: up um. And secondly, you also need more relaxation of

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Speaker 1: the zero COVID policies before sentiment can actually improve. Ready

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Speaker 1: consumption is concerned, and I think these are the two

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Speaker 1: main factors actually hurting the Chinese markets right now. So

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Speaker 1: when you're looking at at stocks in the Asia Pacific,

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Speaker 1: is it similar to your strategies elsewhere where you're trying

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Speaker 1: to focus on healthcare and quality companies with good dividend income. Yeah. Well,

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Speaker 1: in Asia is actually slightly different because of the fact that,

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Speaker 1: you know, the markets here are not as sector focus

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Speaker 1: as the markets in Europe or in the US. Over Here,

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Speaker 1: it's more of a geographical allocation that we are talking about,

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Speaker 1: and I think in that sense, we do think that

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Speaker 1: besides China, we do like Thailand and Indonesia, two countries

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Speaker 1: where we think the situations have actually evolved and have

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Speaker 1: actually improved quite dramatically in the last two years, especially

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Speaker 1: for Thailand, where you know, tourism is if you picked

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Speaker 1: up quite quite nicely in the last couple of months,

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Speaker 1: that interns should actually turn the fundamentals of the economy

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Speaker 1: around quite nicely for three Yeah, I think they got

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Speaker 1: to their tourism numbers about two pre pandemic levels in July,

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Speaker 1: and just to disclaim I helped without too. Let's get

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Speaker 1: to the oil price though, uh it's you know, we're

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Speaker 1: talking about ninety four dollars here. The recent slide when

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Speaker 1: we see the movement in terms of the pressures from

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Speaker 1: Russia Ukraine to where do you see crude move particularly

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Speaker 1: amidst the reopening trade. Yeah, I think that's room for

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Speaker 1: our crew to actually move higher because we haven't seen

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Speaker 1: any demand destruction in the major economies other than China

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Speaker 1: for obvious reasons, UM. And you know, we haven't even

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Speaker 1: moved into the winter months yet. If we do get

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Speaker 1: a harsh winter in your touch wood, UM, that will

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Speaker 1: actually see guest prices and oil prices actually climb new

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Speaker 1: highst especially if the Russians do not increase their supply

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Speaker 1: of guests to the European Union itself, that I think

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Speaker 1: will basically push boil prices to another new record high.

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Speaker 1: What are some of the biggest challenges that you see

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Speaker 1: outside of China in Asia at the moment um. I

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Speaker 1: think the main challenges is basically information UM. The numbers

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Speaker 1: are okay at the spun time, but it's largely because

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Speaker 1: quite a few governments in Asia actually subsidize food, UM

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Speaker 1: and and electricity, and I think that's actually starting to

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Speaker 1: take a toll on the governance on a government's cofferce

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Speaker 1: in that sense, and you're looking at fiscal deficits arising

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Speaker 1: as a result of that. So if oil process continue

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Speaker 1: to climb. If you know food prices go in new

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Speaker 1: client that would be a significant challenge for some of

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Speaker 1: the economies in Asia next year, simply because government substudies

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Speaker 1: are likely to actually increase over the over the period

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Speaker 1: and result in higher fiscal deficits. So how much, Kelvin,

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Speaker 1: should we be looking ahead at some of these investments.

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Speaker 1: So if we're talking about food security, we're talking about

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Speaker 1: demand for green tech, Yeah, I think we, I think

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Speaker 1: we we we tend to look at that in terms

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Speaker 1: of as part of our sustainable investments. Actually, and I'm

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Speaker 1: of the opinion that where your sustainable investments is concerned,

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Speaker 1: it should gradually built at least of your portfolios on

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Speaker 1: a twenty on a on a five to seven year basis,

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Speaker 1: because you know, the environment is not getting any better,

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Speaker 1: and we do think that there's increasingly a lot more

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Speaker 1: urgency to actually try to correct that. That interm basically

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Speaker 1: means that your sustainable investments part would likely benefit from

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Speaker 1: that sort of outlook. Kelvin a question that that sounds

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Speaker 1: like it's political, but it may not be really looking

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Speaker 1: at a cheese and paying in the Communist Party Congress,

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Speaker 1: and if he gets a third term, what do you

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Speaker 1: think the approach will be afterwards, Will will he will?

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Speaker 1: He moved to be tougher in some sense on on

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Speaker 1: the commercial side, on on companies in China. Do you

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Speaker 1: think the easier Um? Well, I think much of the

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Speaker 1: status quo will remain. UM. But you know, we always

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Speaker 1: have this misperception that he was very tough on the

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Speaker 1: commercial side because he was trying to exist control. UM.

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Speaker 1: I think that's actually far from the truth. I think

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Speaker 1: it's largely because of the fact that regulations or in

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Speaker 1: China were very very far behind, very very far behind

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Speaker 1: the curve. Compet tough question to answer in ten seconds.

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Speaker 1: Thank you so much for your time. That Calvin Tay

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Speaker 1: Global Wealth Management, Regional c i O at UBS joining

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Speaker 1: us from Hong Kong. This is Bloomberg