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Speaker 1: Here in New York. We have and Barry with us

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Speaker 1: our guest for the half hour and is founder and

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Speaker 1: managing partner at Thread Needle, and it's pleasure to see

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Speaker 1: you in person. After we've moved beyond COVID and the

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Speaker 1: situation that we've been in for nearly the last three years. Now,

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Speaker 1: I want to begin with a Disney story because one

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Speaker 1: of the things that struck me was this move on

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Speaker 1: the part of an activist fund try and Um Fund Management.

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Speaker 1: They picked up a position in Disney before the last

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Speaker 1: earnings report or the in the days following, I should say,

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Speaker 1: and we know that was a huge disappointment when it

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Speaker 1: comes to an activist looking at a company like Disney.

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Speaker 1: Give me a little bit about what the thinking is

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Speaker 1: how an activist investor approaches a situation like this where

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Speaker 1: you need to create change in order to realize value. Doug,

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Speaker 1: It's it's it's really important to try. And it is

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Speaker 1: not just any activist investor. This is Nelson Peltz. So

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Speaker 1: as you look at someone who's really been in this

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Speaker 1: game for a long time, this really is one of

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Speaker 1: the more forward leaning when activists look to take big

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Speaker 1: positions and companies and in this case, Try and Too

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Speaker 1: about eight hundred million dollars into Disney Um. Those funds

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Speaker 1: are looking at these public companies really in the same

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Speaker 1: way that the private equity industry would think about taking

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Speaker 1: private one of these businesses. They're looking to take out

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Speaker 1: costs very aggressively. They're looking at capital allocation and return

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Speaker 1: on equity in these businesses and a much more forward

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Speaker 1: leaning fashion. And they're looking at ways to turbocharge revenue

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Speaker 1: growth in a cost efficient way, all the same ways

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Speaker 1: that private investors assess companies. But it's a little bit

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Speaker 1: of a different mindset when you're looking at the public space.

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Speaker 1: Give us an idea what is different then if you

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Speaker 1: don't mind now, sure well, if you were to think

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Speaker 1: about rish the way in which private equity looks to

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Speaker 1: create change in their portfolio, we do it without having

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Speaker 1: to worry about near term impacts to earnings per share.

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Speaker 1: We do it without having to worry what the public

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Speaker 1: gaze means in doing some very difficult things in restructuring,

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Speaker 1: in headcount reduction, and so when you're doing this in

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Speaker 1: the public domain, in response to having an activist, you're

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Speaker 1: doing things that are sort of uncomfortable as a public

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Speaker 1: company with a lot more urgency and where you're having

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Speaker 1: to go to the analysts the research community and say,

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Speaker 1: have patients with us as we take some near term

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Speaker 1: losses to get these longer term gains. It's a very

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Speaker 1: different way of looking at public market partment of putune

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Speaker 1: A tod spot very quickly will continue the conversation in

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Speaker 1: part two. But would you expect Bob Iger to make

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Speaker 1: some major changes now that he comes back, Doug, I

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Speaker 1: think he's absolutely no choice but to do it. And

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Speaker 1: as just as we were coming on their I at

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Speaker 1: least saw something trending still to be verified that notices

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Speaker 1: were already going out to Julio employees to start anticipating

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Speaker 1: reductions and so zooms earnings come out. I don't want

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Speaker 1: to spend too much time on individual companies, but earlier

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Speaker 1: and they did actually record their slowest growth ever, but

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Speaker 1: again they did have profits which are ahead of analyst estimates.

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Speaker 1: It must be very difficult for this company given the

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Speaker 1: end of the pandemic. Are they're making the right moves?

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Speaker 1: And the reason why I ask is it's amazing that

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Speaker 1: they still are actually growing a tool given that people

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Speaker 1: are returning to the office and Secondly, did they repair

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Speaker 1: the roof while it was sunny? Rich I completely agree

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Speaker 1: with that sentiment of its sort of amazing. They're growing

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Speaker 1: a tool and to take a big step or to

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Speaker 1: zoom out. If you look at Zoom and you look

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Speaker 1: at Docu sign two of the big work from Anywhere stocks,

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Speaker 1: I think there's a bigger existential issue. I don't think

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Speaker 1: either of those companies needs to exist on a standalone basis.

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Speaker 1: So let's talk about the residue from the pandemic as

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Speaker 1: it applies to cryptocurrency. This was something that gained a

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Speaker 1: lot of traction during the whole COVID thing. People finding

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Speaker 1: alternative ways of putting a lot of money that consumers

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Speaker 1: were accumulating. They thought crypto was it seemed like a

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Speaker 1: good play. What have we learned as a result of

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Speaker 1: the implosion of f t X. Do you mean was

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Speaker 1: it a digital tulip? Is that is that the question?

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Speaker 1: Or a chilip n f t or in current studocurrency format.

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Speaker 1: I think like f t X, and you know I've

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Speaker 1: talked about this before, captured the imagination in the sheer scale.

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Speaker 1: It was able to reach in the quality of the investors.

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Speaker 1: It was able to tap and the sheer number of

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Speaker 1: users it was able to get to engage with it's

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Speaker 1: called products, and the fact that it's imploded in such

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Speaker 1: a dramatic and accelerated fashion, I think has shattered confidence

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Speaker 1: in investing behind blockchain. When you look at the numbers,

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Speaker 1: from the beginning of one to the end of Q

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Speaker 1: two this year, between six and a half and nine

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Speaker 1: and a half billion dollars a quarter was being deployed

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Speaker 1: privately to invest into the crypto adjacent sectors. I think

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Speaker 1: it's going to create it to nothing by the end

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Speaker 1: of this year. And the thing is all right, you know.

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Speaker 1: I think everybody kind of agrees that the blockchain, the

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Speaker 1: technology behind a lot of these cryptocurrencies, is certainly something

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Speaker 1: which is a game changer, But what's the point of

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Speaker 1: the currencies themselves? Rich I am full disclosure, I have

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Speaker 1: never bought cryptocurrency, so you're talking to someone who's never

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Speaker 1: really believed in these tokens as a means of exchange,

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Speaker 1: a store of value. Um. I think the question of

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Speaker 1: what is the point of them has been called into question,

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Speaker 1: and I think Bitcoin is the to see the trough

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Speaker 1: as people continue to ask themselves why do these existing

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Speaker 1: are the incredible alternatives to traditional currency. So the negativity

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Speaker 1: that we've seen expressed in markets, is there a risk

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Speaker 1: of contagion in terms of the way that it may

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Speaker 1: affect sentiment going forward? Does this have kind of the

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Speaker 1: ability to infect more negativity just and cause the markets

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Speaker 1: to become a little bit more conservative, especially as we're

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Speaker 1: looking out into three we've got tighter FED policy. We

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Speaker 1: don't know where the FED is going to take us.

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Speaker 1: I mean, there's just so much out there to be

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Speaker 1: concerned about right now. I don't see risk of contagion.

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Speaker 1: I think that the focus on crypto and blockchain specifically

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Speaker 1: will remain focused in terms of looking at catastrophic losses

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Speaker 1: in terms of really large scale bankruptcies. I think that

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Speaker 1: will remain narrow to that space where I do think

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Speaker 1: sentiment will be impacted, but perhaps positively is in forcing

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Speaker 1: investors to be disciplined. Again, what ft X highlighted was

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Speaker 1: the quality of religions perhaps or it was perhaps not

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Speaker 1: at the standard that that people would typically have if

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Speaker 1: there wasn't such a bubblicious frame of mind. And I

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Speaker 1: do think that returned to discipline, the return to cash,

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Speaker 1: the return to tangible business models and assets are going

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Speaker 1: to come quickly. Okay, So you look at the equity

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Speaker 1: markets and then you look in the US and you

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Speaker 1: look at the SNP. I mean, it's yielding one point seven.

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Speaker 1: You know, there's nothing of ed what's going on in

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Speaker 1: the bond market, and you're looking at also a forward

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Speaker 1: piece of about seventeen times earnings. That's not historically slightly

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Speaker 1: on the expensive side, But is that the only place

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Speaker 1: you can go the bond market. Yeah, it's slightly on

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Speaker 1: the expensive side relative to history. It's on the very

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Speaker 1: expensive side when you put it in the context of

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Speaker 1: deep macro uncertainty, worsening outlook in Europe, and this point

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Speaker 1: around consumer sentiment being very cuspy here in the United States.

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Speaker 1: So I actually worry my own personal view as the

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Speaker 1: SMP is going to crack. I don't see it sustaining

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Speaker 1: itself at these levels as we go into the end

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Speaker 1: of the year, and I think there's a downward correction

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Speaker 1: coming um as people reframe the outlook for three which

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Speaker 1: I think is going to become more and more negative.

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Speaker 1: And the FED is the culprit for driving this. I mean,

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Speaker 1: but they have no choice if you really believe that

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Speaker 1: inflation is out of control, and the FED has no

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Speaker 1: choice but to get it back in let's say, at

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Speaker 1: a two percent target. I mean we're looking at a

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Speaker 1: lot more tightening. I think it's certainly looking at a

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Speaker 1: bit more tightening Zog and I think the expectation is

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Speaker 1: it will see another seventy five basis point hike coming

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Speaker 1: into Scember, if nothing else, because the FED has to

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Speaker 1: get a handle on its credibility again, having been so

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Speaker 1: heavily criticized up into this point. Yeah, the problem is that,

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Speaker 1: you know, by trying to reach for your credibility, you

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Speaker 1: might be putting the economy in danger by policy mistakes

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Speaker 1: and perhaps not actually having a little palls to see

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Speaker 1: how amount of policy is actually at the moment bearing fruit,

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Speaker 1: if at all. But you know, you've got to ask

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Speaker 1: yourself the other question, how much pain are they willing

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Speaker 1: to inflict on the US economy to get inflation down? Well?

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Speaker 1: I think Richard's interesting so far is while we have

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Speaker 1: seen the stock market correct, we haven't yet seen um

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Speaker 1: an impact on the real economy. So you know, GDP

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Speaker 1: actually was up right for the last quarter. We see

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Speaker 1: growth there, we have seen a little bit of softening

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Speaker 1: in the labor market, but certainly not to a degree

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Speaker 1: that was suggest that we're on the recession A session

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Speaker 1: we cast right at this moment, even though consensus is

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Speaker 1: on a forward looking basis is going to be tough.

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Speaker 1: So and still we see the real time data catch

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Speaker 1: up with the actual targets of the FED, which, by

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Speaker 1: the way, but not stock market related. I think the

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Speaker 1: FED is going to have to keep pushing. How are

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Speaker 1: you feeling about opportunities offshore right now? Away from the

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Speaker 1: U S. We talk a lot on this program about

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Speaker 1: the situation in Asia. We know what's going on in China,

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Speaker 1: kind of renewed concern about COVID and and perhaps a

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Speaker 1: lot more in the way of lockdowns. Are you looking

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Speaker 1: at opportunities in the Asia Pacific? Are you seeing anything

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Speaker 1: away from the US right now? It, Doug, I spend

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Speaker 1: more of my time in Europe, so I spent a

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Speaker 1: lot of time in the United Kingdom. I spend time

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Speaker 1: and the continent and where I see um risk at

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Speaker 1: the moment, but risk at some point becomes opportunity because

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Speaker 1: these things tend to to overcorrect. Is I do think

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Speaker 1: sitting here in New York that the US markets do

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Speaker 1: not yet fully appreciate the level of stress that the

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Speaker 1: British and the European consumer is going to feel as

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Speaker 1: energy prices remain as high as they are on that

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Speaker 1: side of the Atlantic. And so for the near term,

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Speaker 1: I see risk, but I'm hoping there's a correction and

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Speaker 1: there's an opportunity to get value in the beginning of

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Speaker 1: next year. Okay, So where would that value be? I mean,

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Speaker 1: it does seem as though the economy is there, particularly

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Speaker 1: the UK, are really really going to feel it, and

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Speaker 1: you can almost it's almost palpable that there's going to

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Speaker 1: be a deep recession. Yeah, I think that's right, Rish,

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Speaker 1: And I think though that's where looking at the defensive

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Speaker 1: sector staples over there. You know, one area that is

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Speaker 1: a big part of British economy for examples, the defense sector,

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Speaker 1: and I think one area where spending won't be cut

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Speaker 1: because of the secular trend is in defense. So I'm

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Speaker 1: looking at that sector and particularly new technolog She's touching

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Speaker 1: it quite aggressively. Could it get a lot worse before

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Speaker 1: it gets better? Do you think? Um? I think that

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Speaker 1: we're going to be in for a very rough Q

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Speaker 1: one when we're looking at the European stocks in particularly

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Speaker 1: repercussions here in the US dog I don't think yet,

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Speaker 1: despite the fact that we've seen this earning season um

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Speaker 1: at the beginning of a demarcation between those companies that

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Speaker 1: are getting get share gains while its share gains, because

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Speaker 1: you know, there's been a flight to quality. We haven't

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Speaker 1: yet seen the full impact of the strong dollar and

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Speaker 1: what we can in global demand. I think that's going

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Speaker 1: to come in Q one. And the mood music with

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Speaker 1: the China seems to have changed, with a lot more

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Speaker 1: of the investment houses becoming interested again and seeing it

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Speaker 1: as being more investable. What's your take. I do think

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Speaker 1: it's more investable on the near term tactical basis rich,

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Speaker 1: but there's just one overarching comment in China that I think, Um,

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Speaker 1: it's more of a long term perspective. If you look

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Speaker 1: back over the last ten to fifteen years of global

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Speaker 1: GDP growth, China has been somewhere between twenty five and

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Speaker 1: thirty three percent of the or UM growth rates. You know,

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Speaker 1: has driven a large chunk of that. But China has

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Speaker 1: been maturing. You know, China has become very expensive in

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Speaker 1: terms of supply chain and production, and I don't think. Yes,

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Speaker 1: perhaps we may have a pop of euphoria as China

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Speaker 1: comes out of the COVID fog, but after that, I

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Speaker 1: don't think we're going to see the same level of

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Speaker 1: GDP growth that we've seen over the much longer term

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Speaker 1: historically with China, and I don't think we've caught up

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Speaker 1: to expectations yet in terms of that slow down in

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Speaker 1: secular growth coming from that part of the world. Thirty

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Speaker 1: seconds for your take on the future of Hong Kong.

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Speaker 1: The talent drain DOUG, I think has been very disappointing

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Speaker 1: for the Hong Kong market. If I think about the

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Speaker 1: talent that's that's gone to Hong Kong over the decades,

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Speaker 1: it's been a real hub for entrepreneurs. It's been a

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Speaker 1: real hub for innovation, particularly in finance. You know, when

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Speaker 1: I talk to a lot of friends who've left Hong Kong, um,

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Speaker 1: they've been very sad to do that. I think with

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Speaker 1: the political uncertainty there, um it's a little unclear as

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Speaker 1: to where Hong Kong goes next. It's always a leisure

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Speaker 1: to chat with you. Thanks so much for making the

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Speaker 1: time for us. And Barry is found her managing partner

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Speaker 1: at thread Needle, joining us here on daybreak Asia. This

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Speaker 1: is Bloomberg