WEBVTT - David Chao on the Markets (Radio)

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<v Speaker 1>Let's get to David Chow, our guest for the half hour.

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<v Speaker 1>David is Asia Pacific X Japan strategist at Investco. He

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<v Speaker 1>joins from Hong Kong. David, kind of fortuitous that you're

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<v Speaker 1>with us on a day where we're seeing pretty much

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<v Speaker 1>a meltdown in Chinese related assets. We were talking earlier

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<v Speaker 1>about these two COVID related deaths, just two, and the

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<v Speaker 1>knee jerk response is to sell the market. Is this

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<v Speaker 1>an overreaction? Well, I think that this comes on the

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<v Speaker 1>heels of MSCI China. The index was up twelve in

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<v Speaker 1>the past five trading days and up November months to date.

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<v Speaker 1>So perhaps this is a bit of markets taking a breather.

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<v Speaker 1>And I've always thought that China's reopening would take a

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<v Speaker 1>much longer time, and we're gonna see fits and starts

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<v Speaker 1>as we're seeing in certain parts of China, and so

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<v Speaker 1>I think investors should buckle up for this reopening, play

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<v Speaker 1>buckle up. Indeed, if the experience of other countries is

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<v Speaker 1>any guy, this is just the thin end of the

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<v Speaker 1>wedge in China unless they locked down severely again. So

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<v Speaker 1>which of these two outcomes do you think it's going

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<v Speaker 1>to happen, and which is worse. Well, I think that

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<v Speaker 1>the lockdowns are going to perhaps be less sparse or

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<v Speaker 1>more targeted. And the government has already announced recent measures

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<v Speaker 1>UM to to loosen up some of the stringent COVID policies,

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<v Speaker 1>and I expect that to transpire going forward. I don't

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<v Speaker 1>see any real meaningful reopening UM in China until perhaps

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<v Speaker 1>after the dual sessions UM in March April time print.

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<v Speaker 1>Did it surprise you that the PBOC left the benchmark

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<v Speaker 1>lending rate to the loan prime rate at least the

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<v Speaker 1>one year unchanged three point six five. It didn't because

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<v Speaker 1>if you really think about it, UM cuts the five

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<v Speaker 1>basis points here, ten basis points there. It hasn't really

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<v Speaker 1>moved the needle over the past year. You seem loosening

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<v Speaker 1>monetary policy. Now, what really moves the needle is a

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<v Speaker 1>uptake in credit uh and so consumers and also business

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<v Speaker 1>is getting more confident in taking out loans. We started

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<v Speaker 1>to see a bit of that move UM. And also

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<v Speaker 1>what really moves the needle is physcal stimulus and the

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<v Speaker 1>government has instituted a significant amount of infrastructure investments over

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<v Speaker 1>the past year, and I think that they're they're looking

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<v Speaker 1>at the economic data to see if they need to

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<v Speaker 1>implement anymore. Another challenge that other economies have had to

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<v Speaker 1>overcome as they reopened as resurgent inflation. Do you see

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<v Speaker 1>the securring in China? That is the one potential block

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<v Speaker 1>SWAN that we may see next year with UM with

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<v Speaker 1>China reopening, Certainly, I would expect cp I in China

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<v Speaker 1>to tick up meaningfully over the next year. And that's

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<v Speaker 1>that's perhaps one risk that's not being watched too closely.

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<v Speaker 1>But current inflation inflation expectations remain well anchored in China.

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<v Speaker 1>And David I made and the the very disappointing first

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<v Speaker 1>twenty days of exports trade for South Korea. But you

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<v Speaker 1>see some upside for Korea, particularly tick. Can you give

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<v Speaker 1>us the ball case? Sure? I would say that it's

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<v Speaker 1>not surprising that we see a bit of softness due

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<v Speaker 1>to kind of the global macro drop backdrop deteriorating and

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<v Speaker 1>and I continue to expect that, say over the next

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<v Speaker 1>few months, especially as the FED continues to hike UM.

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<v Speaker 1>We're seeing Asian central banks also hike in response. Now

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<v Speaker 1>what I think that investors will be able to see

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<v Speaker 1>through and already uh we've seen Korean equities rally significantly

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<v Speaker 1>over the past couple of weeks. I think that investors

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<v Speaker 1>will be able to see through uh, this soft hatch

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<v Speaker 1>um that that's occurring right now, and especially as the

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<v Speaker 1>semiconductor cycle is at the bottom right now, I think

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<v Speaker 1>that this presents a buying opportunity. So, with relatively elevated

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<v Speaker 1>inflation in South Korea, we have a b okay decision

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<v Speaker 1>this week. There had been some debate as to whether

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<v Speaker 1>or not the tightening would be twenty five or maybe

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<v Speaker 1>even fifty basis points. What do you think is going

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<v Speaker 1>to happen this week from the b okay? I mean,

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<v Speaker 1>the one has been very weak. That could be a

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<v Speaker 1>positive if you if you tighten, yeah, I mean maybe

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<v Speaker 1>that will reverse course. Well, I think that a lot

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<v Speaker 1>of this is contingent on what the trajectory of the

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<v Speaker 1>FED is, and certainly all central bankers in Asia are

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<v Speaker 1>trying to figure out what the tightening path that the

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<v Speaker 1>FED is going to take and if we're going to

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<v Speaker 1>see a downship or even a pause. And I'd say

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<v Speaker 1>that many central banks in Asia would would actually be

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<v Speaker 1>pausing already given kind of the deteriorating MAC and backdrop.

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<v Speaker 1>But I think this is UM. This is kind of

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<v Speaker 1>a weight in sea period. And what's the app look

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<v Speaker 1>for the one under these circumstances. Well, the one is

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<v Speaker 1>actually appreciated over the past couple of weeks, given UH

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<v Speaker 1>kind of a risk on appetite. But given the that

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<v Speaker 1>the plummet in the exports number, and also the narrative

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<v Speaker 1>that China's reopening could take a little longer and could

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<v Speaker 1>could be a bit disruptive, I think that we could

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<v Speaker 1>potentially see some of the depreciating effects on the wall.

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<v Speaker 1>I'm sorry, David. We don't often talk about the market

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<v Speaker 1>in Malaysia, but we did have the weekend elections producing

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<v Speaker 1>a hung parliament. One of the things that I was

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<v Speaker 1>struck by given the success of the Islamic Party p A. Yes,

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<v Speaker 1>you know, the really the single party with the most seats.

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<v Speaker 1>Now gaming alcohol related stocks moving lower in today's session.

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<v Speaker 1>What is your outlook for Malaysia? Well, I think that UM,

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<v Speaker 1>unlike in the U S where I think investors tend

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<v Speaker 1>to like a divided government for checks and balances, I

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<v Speaker 1>think when investors look at Malaysia, we certainly appreciate when

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<v Speaker 1>there's a lot more policy certainty now with this hung government, UM,

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<v Speaker 1>I think that this means that they're tough negotiations ahead

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<v Speaker 1>in order to form the next government. And I think

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<v Speaker 1>the big change was likely for the Malaysian budget. So

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<v Speaker 1>while policies UH could remain populist for a longer period

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<v Speaker 1>of time. And I think that this is this is

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<v Speaker 1>something UM that investors have to weigh. Yeah, but the

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<v Speaker 1>Doug's point pass is a very conservative Islamist party. UM.

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<v Speaker 1>They are known for pushing Sharia law, bands on alcohol.

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<v Speaker 1>Could Malaysia be hitting in a exciting new direction? Well,

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<v Speaker 1>I think that this there there's no clear direction in

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<v Speaker 1>terms of which party is going to take a lead,

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<v Speaker 1>and there's certainly going to be a need to build coalitions.

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<v Speaker 1>And I think that this you know, there's going to

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<v Speaker 1>be a bit of political uncertainty UM, and that this

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<v Speaker 1>could potentially weaken the Malaysian currency in the in the

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<v Speaker 1>near term. David, we just got a few minutes lift.

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<v Speaker 1>I'm wondering what you consider your biggest risk is out

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<v Speaker 1>there at the moment, as a recission and stagflation or

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<v Speaker 1>something else. Well, I think that the biggest risk could

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<v Speaker 1>potentially be that the inflation levels in the US are

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<v Speaker 1>persistently high, and that the FED may have to keep

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<v Speaker 1>monetary conditions more stringent and tighter for a longer period

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<v Speaker 1>than expected, and this will certainly have an impact on

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<v Speaker 1>booth global growth and and especially in places like in Asia,

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<v Speaker 1>especially the export oriented economists. Alright, David, Asia Pacific extrapan

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<v Speaker 1>strategist Adam Visco, thanks so much for joining US