Speaker 1: Let's get to David Chow, our guest for the half hour.
Speaker 1: David is Asia Pacific X Japan strategist at Investco. He
Speaker 1: joins from Hong Kong. David, kind of fortuitous that you're
Speaker 1: with us on a day where we're seeing pretty much
Speaker 1: a meltdown in Chinese related assets. We were talking earlier
Speaker 1: about these two COVID related deaths, just two, and the
Speaker 1: knee jerk response is to sell the market. Is this
Speaker 1: an overreaction? Well, I think that this comes on the
Speaker 1: heels of MSCI China. The index was up twelve in
Speaker 1: the past five trading days and up November months to date.
Speaker 1: So perhaps this is a bit of markets taking a breather.
Speaker 1: And I've always thought that China's reopening would take a
Speaker 1: much longer time, and we're gonna see fits and starts
Speaker 1: as we're seeing in certain parts of China, and so
Speaker 1: I think investors should buckle up for this reopening, play
Speaker 1: buckle up. Indeed, if the experience of other countries is
Speaker 1: any guy, this is just the thin end of the
Speaker 1: wedge in China unless they locked down severely again. So
Speaker 1: which of these two outcomes do you think it's going
Speaker 1: to happen, and which is worse. Well, I think that
Speaker 1: the lockdowns are going to perhaps be less sparse or
Speaker 1: more targeted. And the government has already announced recent measures
Speaker 1: UM to to loosen up some of the stringent COVID policies,
Speaker 1: and I expect that to transpire going forward. I don't
Speaker 1: see any real meaningful reopening UM in China until perhaps
Speaker 1: after the dual sessions UM in March April time print.
Speaker 1: Did it surprise you that the PBOC left the benchmark
Speaker 1: lending rate to the loan prime rate at least the
Speaker 1: one year unchanged three point six five. It didn't because
Speaker 1: if you really think about it, UM cuts the five
Speaker 1: basis points here, ten basis points there. It hasn't really
Speaker 1: moved the needle over the past year. You seem loosening
Speaker 1: monetary policy. Now, what really moves the needle is a
Speaker 1: uptake in credit uh and so consumers and also business
Speaker 1: is getting more confident in taking out loans. We started
Speaker 1: to see a bit of that move UM. And also
Speaker 1: what really moves the needle is physcal stimulus and the
Speaker 1: government has instituted a significant amount of infrastructure investments over
Speaker 1: the past year, and I think that they're they're looking
Speaker 1: at the economic data to see if they need to
Speaker 1: implement anymore. Another challenge that other economies have had to
Speaker 1: overcome as they reopened as resurgent inflation. Do you see
Speaker 1: the securring in China? That is the one potential block
Speaker 1: SWAN that we may see next year with UM with
Speaker 1: China reopening, Certainly, I would expect cp I in China
Speaker 1: to tick up meaningfully over the next year. And that's
Speaker 1: that's perhaps one risk that's not being watched too closely.
Speaker 1: But current inflation inflation expectations remain well anchored in China.
Speaker 1: And David I made and the the very disappointing first
Speaker 1: twenty days of exports trade for South Korea. But you
Speaker 1: see some upside for Korea, particularly tick. Can you give
Speaker 1: us the ball case? Sure? I would say that it's
Speaker 1: not surprising that we see a bit of softness due
Speaker 1: to kind of the global macro drop backdrop deteriorating and
Speaker 1: and I continue to expect that, say over the next
Speaker 1: few months, especially as the FED continues to hike UM.
Speaker 1: We're seeing Asian central banks also hike in response. Now
Speaker 1: what I think that investors will be able to see
Speaker 1: through and already uh we've seen Korean equities rally significantly
Speaker 1: over the past couple of weeks. I think that investors
Speaker 1: will be able to see through uh, this soft hatch
Speaker 1: um that that's occurring right now, and especially as the
Speaker 1: semiconductor cycle is at the bottom right now, I think
Speaker 1: that this presents a buying opportunity. So, with relatively elevated
Speaker 1: inflation in South Korea, we have a b okay decision
Speaker 1: this week. There had been some debate as to whether
Speaker 1: or not the tightening would be twenty five or maybe
Speaker 1: even fifty basis points. What do you think is going
Speaker 1: to happen this week from the b okay? I mean,
Speaker 1: the one has been very weak. That could be a
Speaker 1: positive if you if you tighten, yeah, I mean maybe
Speaker 1: that will reverse course. Well, I think that a lot
Speaker 1: of this is contingent on what the trajectory of the
Speaker 1: FED is, and certainly all central bankers in Asia are
Speaker 1: trying to figure out what the tightening path that the
Speaker 1: FED is going to take and if we're going to
Speaker 1: see a downship or even a pause. And I'd say
Speaker 1: that many central banks in Asia would would actually be
Speaker 1: pausing already given kind of the deteriorating MAC and backdrop.
Speaker 1: But I think this is UM. This is kind of
Speaker 1: a weight in sea period. And what's the app look
Speaker 1: for the one under these circumstances. Well, the one is
Speaker 1: actually appreciated over the past couple of weeks, given UH
Speaker 1: kind of a risk on appetite. But given the that
Speaker 1: the plummet in the exports number, and also the narrative
Speaker 1: that China's reopening could take a little longer and could
Speaker 1: could be a bit disruptive, I think that we could
Speaker 1: potentially see some of the depreciating effects on the wall.
Speaker 1: I'm sorry, David. We don't often talk about the market
Speaker 1: in Malaysia, but we did have the weekend elections producing
Speaker 1: a hung parliament. One of the things that I was
Speaker 1: struck by given the success of the Islamic Party p A. Yes,
Speaker 1: you know, the really the single party with the most seats.
Speaker 1: Now gaming alcohol related stocks moving lower in today's session.
Speaker 1: What is your outlook for Malaysia? Well, I think that UM,
Speaker 1: unlike in the U S where I think investors tend
Speaker 1: to like a divided government for checks and balances, I
Speaker 1: think when investors look at Malaysia, we certainly appreciate when
Speaker 1: there's a lot more policy certainty now with this hung government, UM,
Speaker 1: I think that this means that they're tough negotiations ahead
Speaker 1: in order to form the next government. And I think
Speaker 1: the big change was likely for the Malaysian budget. So
Speaker 1: while policies UH could remain populist for a longer period
Speaker 1: of time. And I think that this is this is
Speaker 1: something UM that investors have to weigh. Yeah, but the
Speaker 1: Doug's point pass is a very conservative Islamist party. UM.
Speaker 1: They are known for pushing Sharia law, bands on alcohol.
Speaker 1: Could Malaysia be hitting in a exciting new direction? Well,
Speaker 1: I think that this there there's no clear direction in
Speaker 1: terms of which party is going to take a lead,
Speaker 1: and there's certainly going to be a need to build coalitions.
Speaker 1: And I think that this you know, there's going to
Speaker 1: be a bit of political uncertainty UM, and that this
Speaker 1: could potentially weaken the Malaysian currency in the in the
Speaker 1: near term. David, we just got a few minutes lift.
Speaker 1: I'm wondering what you consider your biggest risk is out
Speaker 1: there at the moment, as a recission and stagflation or
Speaker 1: something else. Well, I think that the biggest risk could
Speaker 1: potentially be that the inflation levels in the US are
Speaker 1: persistently high, and that the FED may have to keep
Speaker 1: monetary conditions more stringent and tighter for a longer period
Speaker 1: than expected, and this will certainly have an impact on
Speaker 1: booth global growth and and especially in places like in Asia,
Speaker 1: especially the export oriented economists. Alright, David, Asia Pacific extrapan
Speaker 1: strategist Adam Visco, thanks so much for joining US