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Speaker 1: So let's get to our guests now. Stephen Davis is

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Speaker 1: founder and CEO at Javelin Wealth Management to discuss the

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Speaker 1: latest on the markets, joining us from Singapore. So we're

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Speaker 1: discussing in our top stories there that the CPI data

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Speaker 1: of the week is really going to set the tone

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Speaker 1: for risk assets in the near term. If we do

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Speaker 1: read the outcome as confirmation of a peak in inflation,

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Speaker 1: what kind of assets are you looking forward to outperform here?

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Speaker 1: I think the position is still to be fairly cautious

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Speaker 1: because we are we certainly are seeing the inflation the

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Speaker 1: upward pressure at least could be mitigating a bit, and

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Speaker 1: not surprisingly, if you're comparing high prices this year with

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Speaker 1: high prices last year, than that growth rate is obviously

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Speaker 1: going to slow. Nonetheless, prices of commodities still remain very high,

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Speaker 1: and we're starting to see the bleed through into the

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Speaker 1: economy in the form of higher wages. So that's going

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Speaker 1: to keep inflation high for longer, and that means more

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Speaker 1: aggressive FED and that's still creative volatility for stock market.

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Speaker 1: So a more aggressive FED. We heard there from Janet

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Speaker 1: Yellen as well, saying that Americans understand the need to

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Speaker 1: conquer inflation. Do you think it is likely they are

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Speaker 1: going to manage that soft learning though? Well? Uh coin

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Speaker 1: a phrase. That's about the ten trillion dollar question at

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Speaker 1: the moment, because no central bank has been able to

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Speaker 1: do that yet, So if they do manage to put

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Speaker 1: it off this time, it will be truly remarkable. I

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Speaker 1: think what we're seeing is that the FED, having been

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Speaker 1: a bit late to the inflation busting party, is certainly

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Speaker 1: moving a little bit more quickly. But you only have

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Speaker 1: to see the difference between interest rates at a growth

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Speaker 1: level and inflation, and you can see that the gap

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Speaker 1: is still substantial. So um economic orthodoxy would suggest that

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Speaker 1: if they're going to be successful, they're going to have

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Speaker 1: to raise rates significantly higher than where they are today.

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Speaker 1: And I don't think the markets priced that in. In

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Speaker 1: terms of whether or not the market has priced everything in.

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Speaker 1: You say you're moving to reduce the underweight in US equity,

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Speaker 1: So have we seen a bottom? Um, Yeah, it's difficult say.

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Speaker 1: I mean we were very underweight US. So having seen

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Speaker 1: some improvement in core data, some improvement in that commodity

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Speaker 1: price matrix that we talked about, so I think we

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Speaker 1: feel more comfortable in moving back to closer to a

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Speaker 1: more neutral position in US equities, but we're still underweight

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Speaker 1: pretty much everywhere else, and still underweight equities as a class.

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Speaker 1: So it's very much sort of market region specific and

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Speaker 1: very much dependent upon what the individual central bank in

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Speaker 1: those locations is doing. All right, Well, let's talk about

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Speaker 1: Europe for example, and what we saw with the ECB

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Speaker 1: last week and that very aggressive hike there. We know

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Speaker 1: that Europe is is one region that is probably facing

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Speaker 1: the direst sense of a recession. How much do these

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Speaker 1: energy woes and the euro movement kind of complicate things

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Speaker 1: for the ECB and investing in Europe? Oh, significantly. The

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Speaker 1: ECB has been trying to keep interest rates very low

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Speaker 1: for far longer than perhaps they should have done, and

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Speaker 1: that's now being fed through into significant inflationary pressures in

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Speaker 1: in European markets and economies. You've seen lots of intervention

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Speaker 1: by different governments to try and cap energy prices, most

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Speaker 1: recently out of the UK. So we're still very much

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Speaker 1: in the early stages of this and it really all depends,

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Speaker 1: I guess, on the severity of the northern European winter,

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Speaker 1: So we're still a month off from that really beginning, UM,

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Speaker 1: and that's going to be the real test. Is that

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Speaker 1: the biggest risk at the moment what's happening in Ukraine

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Speaker 1: and the overall energy crisis. Yes, I think it is,

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Speaker 1: but you know, don't don't take forget that. As I

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Speaker 1: mentioned before, this wage pressure cycle is really kicking off

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Speaker 1: in significant ways, not only across Europe, UK as well

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Speaker 1: and and in the US. And once you start seeing

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Speaker 1: wage pressures building up like they are at the moment,

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Speaker 1: then you really embed inflationary pressures into economies for the

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Speaker 1: longer term, and that means much more serious central bank action.

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Speaker 1: I want to get your thoughts on investing in Asia,

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Speaker 1: but just more broadly, back on the macro point, when

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Speaker 1: we're talking about a lot of those global headwinds. M

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Speaker 1: Live Pulse survey question is what is the most significant

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Speaker 1: shortage you could see in the next twelve months. I

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Speaker 1: guess it's it's still got to be oil opecs OPEC

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Speaker 1: classes being showing no inclination to increase levels of oil

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Speaker 1: output UM, and that's also being reflected in the gas

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Speaker 1: market as well. Gas market, obviously constrained by the Ukraine war,

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Speaker 1: prices have come down a little bit but still highly elevated,

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Speaker 1: and that's what's causing all the trouble in European economies

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Speaker 1: at the moment. Okay, let's talk to the Asia picture

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Speaker 1: and start with China. We know it's all about dynamic

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Speaker 1: zero COVID zero policies and whether or not things could

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Speaker 1: markedly change after the Party Congress. Do you see that

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Speaker 1: potentially happening, some kind of easy coming through from President

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Speaker 1: she and does that make investing in China look a

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Speaker 1: little bit more tract about to the Party Congress. One

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Speaker 1: can only hope that that will be what happens. I think, however,

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Speaker 1: that everybody has been quite surprised by the degree to

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Speaker 1: which the Chinese government has not been flushing this system

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Speaker 1: with liquidity. That's the playbook that has been well established

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Speaker 1: over many years, I guess, starting back in two thousand

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Speaker 1: and eight, two thousand and nine, when stimulus spending was

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Speaker 1: responsible for digging the Chinese economy out of a whole.

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Speaker 1: They haven't deployed that this time around. Obviously, they're concerned

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Speaker 1: about inflationary pressures and and creating excessive leverage in the

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Speaker 1: within the system, which is obviously a big problem in

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Speaker 1: the property sector at the moment, but the reason for

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Speaker 1: caution is still a bit unclear, given the fact that

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Speaker 1: COVID is really putting the overall economy and consumers in

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Speaker 1: particular under pressure. Alright, let's talk about where you do

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Speaker 1: see value. I mean when looking at this very strong

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Speaker 1: dollar as well, which creates imbalances across investing in Asia.

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Speaker 1: But you like a lot of the names you're focused on,

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Speaker 1: Vietnam tell us way. I mean, it's interesting to see

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Speaker 1: that Vietnam, for instances a definite beneficiary of the opaque

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Speaker 1: Chinese policies with regards to COVID. Vietnam has been more open,

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Speaker 1: more perhaps more successful were getting things under control um

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Speaker 1: and also their very policies on foreign investment and foreign

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Speaker 1: companies investing in their markets seem to be a bit

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Speaker 1: more transparent. It's very clear that the inflows foreign investment

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Speaker 1: into Vietnam are going to continue, and that's got to

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Speaker 1: be a long term benefit to that economy, which we

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Speaker 1: expect to grow strongly. When it comes to the Japan picture,

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Speaker 1: we're hearing from the again US that Japan may remove

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Speaker 1: some visitor barriers in October. We know the reopening theme

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Speaker 1: is going to be a very big one for the economy,

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Speaker 1: and also in terms of some of the impact on

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Speaker 1: the yend too. We're waiting to see whether or not

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Speaker 1: there may be some more intervention there. How attractive is

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Speaker 1: Japan with that week yen, even though you've still got

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Speaker 1: the concerns about the economy being essentially closed. Yeah, I

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Speaker 1: think it's more positive than it's looked for some while.

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Speaker 1: If they do materially loosen things up as far as tourism,

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Speaker 1: then that's going to be a big positive and it

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Speaker 1: should put a bit of floor under the yen. However,

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Speaker 1: Japan obviously is a big net importer of both oil

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Speaker 1: and gas, so that's having a considerable problem for Japanese

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Speaker 1: companies at the moment in terms of cost of production. Nonetheless,

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Speaker 1: perhaps that's slightly offset by a week a yen, which

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Speaker 1: helps them to look a lot more competitive from the

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Speaker 1: net coort perspective, once the dollar cost of imports is

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Speaker 1: taken into account. We're seeing a US at ten year

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Speaker 1: yeard at three point, you remain underweight fixed income. What

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Speaker 1: is the outlook for credit here, It's still pretty unclear,

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Speaker 1: and for that reason we remain pretty negative. Obviously, an

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Speaker 1: arising interest rate environment, bonds don't do well, and that's

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Speaker 1: an absolute given. It just increases the opportunity cost of

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Speaker 1: holding fixed priced instruments. And until interest rates in the

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Speaker 1: bond market begin to adjust upwards to offset that which

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Speaker 1: is happening at the moment, but that's the reason why

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Speaker 1: the bond market has been under performing. You might see

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Speaker 1: some bare market rallies, probably a little bit of what's

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Speaker 1: going on at the moment, but nonetheless, until inflation is

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Speaker 1: under controlling and until interest rates they're clearly seen as

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Speaker 1: topping out, bond market is going to remain under pressure.

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Speaker 1: I would stick with alternatives as a proxy. Alright, Steven,

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Speaker 1: it's been a pleasure having you on. Thank you. Stephen Davis,

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Speaker 1: Founder and CEO Javelin Wealth Management,