Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome to the Bloomberg Daybreak Asia Podcast. I'm Charlie Pell
Speaker 2: Doug Prisoners off. This week it is shaping up to
Speaker 2: be a risk on day in the Asia Pacific week.
Speaker 2: Jobs date out of the US on Wednesday is helping
Speaker 2: to lock in expectations of a FED racout this month.
Speaker 2: Coming up. We get some market perspective from Timothy Moe,
Speaker 2: chief APEC Regional equity strategist at Goldman Sachs. But we
Speaker 2: begin in the States, where treasuries bounce back after a
Speaker 2: slide that put the thirty year yield close to five percent.
Speaker 2: All eyes now turned to Friday's US jobs report, one
Speaker 2: of the last key data points before the Fed's quiet
Speaker 2: period next week. For more, we heard from Audrey Go,
Speaker 2: head of asset Allocation at Standard Chartered Wealth Management Group.
Speaker 2: She spoke with Bloomberg TV's Paul Allen and April Hon
Speaker 2: on the Asia trade.
Speaker 3: Audrey, good to see you. Let's start off.
Speaker 4: By what we're seeing in the long end on bonds
Speaker 4: and this debate that is underway. Is this ball or
Speaker 4: bears deepening and how much further are we going to
Speaker 4: see on.
Speaker 5: This well thanks for having me. I think we expect
Speaker 5: the long end to remain reasonably well anchored. So if
Speaker 5: we look at the range that we're looking at for
Speaker 5: the US thirty year treasury bond use, we are looking
Speaker 5: at the range of between the say four point eight
Speaker 5: we're our five point one percent, And if we look
Speaker 5: at the latest jobs opening data that will release overnight
Speaker 5: as well, we have basically continued to see moderation continued
Speaker 5: moderation in jobs market, where the number of vacancies which
Speaker 5: is available has struck to a ten month flow, and
Speaker 5: we've also seen the vacancy to unemployment ratio, for example,
Speaker 5: a drop below one for the first time since Train
Speaker 5: twenty one. So what this means is now there are
Speaker 5: more unemployed workers than there are vacants, and to us,
Speaker 5: that's likely to continue to weigh on bond use over
Speaker 5: a longer term basis. Notwithstanding that we are seeing some
Speaker 5: short term spike at the moment in terms of the
Speaker 5: long end where the Treasury is concerned.
Speaker 3: What is all this going to mean for the dollar argery,
Speaker 3: So for.
Speaker 5: The dollar wise, I think we wouldn't be surprised if
Speaker 5: there were to be you know, some mild strengthening in
Speaker 5: the dollar in the very short term because of concern
Speaker 5: over physical risks fysical pressure among major central banks, not
Speaker 5: just in the US but globally in the Euro area
Speaker 5: as well. But I think again over a six to
Speaker 5: twelve months horizon, given that the fat we're expecting them
Speaker 5: to deliver the rate cuts starting in September again and
Speaker 5: maybe another to the tree rate cuts for the next
Speaker 5: twelve months or so, we don't expect that to likely
Speaker 5: to add pressure in terms of the dollar for a
Speaker 5: dollar to be biased, or we could trajectory over twelve
Speaker 5: months horizon, But again then they're not looking for massive
Speaker 5: weweakening because economic data is still holding up recently well,
Speaker 5: and if we were to look at US economic surprises,
Speaker 5: those are largely neutral right but still reasonably in a
Speaker 5: recently positive territory. So no measure shift from a dollar perspective,
Speaker 5: and really our advised investors is to treat the range
Speaker 5: in terms of bone YU where it comes to bond investors,
Speaker 5: and then from a dollar as well, largely range bound
Speaker 5: as well, maybe with a slight weakening bias.
Speaker 4: In spite of the relative dollar weakness we are seeing.
Speaker 3: The yen can't seem to catch a break. What is
Speaker 3: your sense of where we go from here?
Speaker 5: I think EOG needs to strike a very delicate balance
Speaker 5: because on one end, if you look economic data Japan,
Speaker 5: Japanese inflation is clearly above two percent target roses three
Speaker 5: percent or three percent. Actually prices are part sticky, we're
Speaker 5: just also improving. So they are clearly pressed in terms
Speaker 5: of the need to normalize the monetary policy. But at
Speaker 5: the same time, with all the uncertainty for your regards
Speaker 5: to one use as well as long end as well
Speaker 5: as you know, trade tensions with the US as well,
Speaker 5: I think they need to strike a relatively balancing act
Speaker 5: in terms of not unrestling the market. So for now
Speaker 5: we are expecting them to really to largely stay pad
Speaker 5: in the upcoming September policy meeting. But over the next
Speaker 5: one year horizon we are probably we are biased to
Speaker 5: believe that they will be likely to continue hiking interestrate,
Speaker 5: maybe delivering one great height or maybe even two over
Speaker 5: the next plogment's horizon.
Speaker 6: Audrey, A lot of asset prices are looking fairly elevated
Speaker 6: at the moment.
Speaker 2: Where are you adding to positions?
Speaker 5: So for us it remains a powerfolding for US, but
Speaker 5: given that the US equity markets have also scaled new
Speaker 5: high together with global equities, we are biased to believe
Speaker 5: that the markets are probably due for consolidation as it
Speaker 5: stands for now, and if there were to be any
Speaker 5: pullback in equity market, we are more We prefer to
Speaker 5: add within the Asian ex Shapen region know to be
Speaker 5: China as well, and China equities has also been doing
Speaker 5: quite well, being one of the better performers years to
Speaker 5: data as well. But even compare evaluations between China as
Speaker 5: well as Asian relatives to global equities, these do treat
Speaker 5: a relative discount and also buffeted or supported by tailwinds
Speaker 5: from our buyers from a weaker years dollar and potentially
Speaker 5: moderate moderate, slightly lower in terms of one use or
Speaker 5: range dances of one use, and those are the factors
Speaker 5: that tend to be quite supportive. Where Asian markets China
Speaker 5: equities arekincerned given a week of dollar till weed, which
Speaker 5: also allows center banks in this part of the world
Speaker 5: to really think about, you know, easy policies to you know,
Speaker 5: continue to support and pushing their economy as well.
Speaker 6: We always talk a little bit more about Chinese equities
Speaker 6: because we're seeing very strong buying. We're also seeing rec
Speaker 6: what borrowing to fuel purchases, and opinion seems to be
Speaker 6: somewhat divided on how sustainable the raally is how do
Speaker 6: you view things?
Speaker 5: So we are change equities and policy tail wings aside.
Speaker 5: We're also seeing some improvement and properate earnings. I think importantly,
Speaker 5: I think we have seen some shift and sentimental where
Speaker 5: consumers household are starting to maybe take up their maturing
Speaker 5: deposites or cash foldings and starting to really put them
Speaker 5: into the equity markets, which is really unseen over the
Speaker 5: last maybe three years or so, given the really poor
Speaker 5: sentiment around that. So on the back of that, we've
Speaker 5: actually seen increased in accounts opening inpropriges in China. We've
Speaker 5: also started to see some decline in cash deposits be
Speaker 5: in the bank as well, and those also signs that
Speaker 5: tells us that some of these liquidity momentum related trade
Speaker 5: in China can continue. But obviously, you know, I think
Speaker 5: shortened there a little overboard, so our preference is really
Speaker 5: for investors to really look to enter them on pullback,
Speaker 5: and valuations have also risen to about maybe above average
Speaker 5: one Dad dish above their five years average as well,
Speaker 5: so net network for pullback before re entering to the market.
Speaker 4: Audrey, what are some of the risks that you think
Speaker 4: at this point markets are underappreciating.
Speaker 5: I think, for one will be I think key will
Speaker 5: be maybe another flare out and treat tension because I
Speaker 5: think people are expecting TAKO to prosist, and I think
Speaker 5: that in itself is quite unpredictable because we wouldn't know
Speaker 5: what might be some of the new policy developments or
Speaker 5: rhetorics that may be up from the Trum administration. So so
Speaker 5: that's one key risk that I think people maybe underappreciating.
Speaker 5: And second or host of first inflation. Then we've also
Speaker 5: recently seen a great high in terms of goal price
Speaker 5: as well, and clearly from it as a location perspective
Speaker 5: for our advisor investors is given these risks which are
Speaker 5: still quite about out there, we will also hold a
Speaker 5: poor allocation to go, which is one of the key
Speaker 5: diversified for portfolios.
Speaker 6: Before we let you go, Audrey, I just want to
Speaker 6: get your thoughts also on some of the assaults that
Speaker 6: we've seen on fed independence with her from a number
Speaker 6: of voices today, the former Treasury Secretary Larry Summer's warning
Speaker 6: of a credibility crisis. Even the governors of the Bank
Speaker 6: of Thailand and Bank of England weighing in on this
Speaker 6: as well. But at what point do you see the
Speaker 6: market start to worry about this? Where's the timeline and
Speaker 6: the threshold for the same sort of tantrum that we
Speaker 6: saw over US trade policy.
Speaker 5: I think it we were to see even more traum
Speaker 5: normally into the Federal Reserve Government Board, I think that
Speaker 5: might be a key risk for the market to maybe
Speaker 5: decidedly turn more worrism on fat independence. I think for
Speaker 5: now it is a risk that is lurking in the background,
Speaker 5: but all from a setup of the board is still
Speaker 5: reasonably i would say independent, but of course subject to
Speaker 5: who the new nominees may be, and also whether Trump
Speaker 5: may be successful in removing Government Cook from the Council
Speaker 5: as well. So that's really quite a key development for
Speaker 5: investory watching. But for now it seems that investors seems
Speaker 5: to be, you know, striking that off and seeing that
Speaker 5: as a background risk more than a key significant risk
Speaker 5: for asset prices.
Speaker 6: All right, Audrey, go ahead of asset allocation at standard
Speaker 6: Chat of Wealth Management group. Thanks so much for joining us.
Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Charlie Peloton.
Speaker 2: This week for Doug Chrisner, we go next to Hong Kong,
Speaker 2: where Goldman Sachs in augural Asia Leaders Conference is underway.
Speaker 2: It was there that we heard from Timothy Moe, Goldman's
Speaker 2: chief APAC regional equity strategist. He shared his market outlook
Speaker 2: during a sit down with Bloomberg's April Hong.
Speaker 4: Okay, let's start with what seems to be on a
Speaker 4: lot of investors' minds, the curve steepening.
Speaker 3: How is that likely to affect Asia stocks using.
Speaker 1: Well, generally a steeper Yeel curve is better for stocks,
Speaker 1: And in particular, what matters is the way that the
Speaker 1: Yeel curve steepens, and what we're expecting is this so
Speaker 1: called bull steepening, which means that the short end of
Speaker 1: the curve goes down, so you basically have the curve steepening.
Speaker 1: But because rates are getting lower at the at the
Speaker 1: short end of the curve, we've done some statistical work
Speaker 1: on this and what we can see is that when
Speaker 1: you've got lower short us rates, short end us rates,
Speaker 1: which of course we expect with the upcoming FED meeting,
Speaker 1: we think the FED will start cutting again, and we
Speaker 1: think there will be three cuts this year and then
Speaker 1: two more in the each quarter next year. That that,
Speaker 1: combined with the softer dollar, which we think will be
Speaker 1: the result in part rates coming down more than Asian rates,
Speaker 1: is typically a favorable backdrop for Asian stocks, particularly for
Speaker 1: markets like Korea, Taiwan, Hong Kong and the Philippines.
Speaker 3: What about Japan, though, we saw how those.
Speaker 4: Banks really got hammered yesterday.
Speaker 3: How bad is the.
Speaker 4: Much higher in global DM yields on the long end
Speaker 4: potentially going to be for their bond books typically?
Speaker 1: Well, I want to break that down into two bits.
Speaker 1: So higher rates in Japan should be good for the banks.
Speaker 1: In fact, that's one of the reasons why we do
Speaker 1: like we do like banks because obviously, when rates are
Speaker 1: at the very low levels that they were in the
Speaker 1: yeal curve control, then the bank's earnings and margins were very,
Speaker 1: very compressed. So when you've got rates rising from a
Speaker 1: low absolute level and you also have a steeping of
Speaker 1: the eal curve, that typically a very very favorable environment
Speaker 1: for banks. That's the reason why banks have done well.
Speaker 1: I think with regard to the steeping along end of
Speaker 1: the curve, then there's some concerns about are there signals
Speaker 1: there about Japan's fiscal ability to repay It's a large
Speaker 1: amount of borrowing toch about four hundred percent debt to GDP,
Speaker 1: and so I think that that has taken some of
Speaker 1: the edge off the banks which had done well previously.
Speaker 1: So I think it's a bit of a reason for
Speaker 1: banks to have some profit taking, but overall, we still
Speaker 1: are favorable on the Japanese banks.
Speaker 4: Do you see this as potentially a risk for markets
Speaker 4: that are more bank heavy, such as Australia?
Speaker 1: Generally yes, I mean, so we're more cautious banks. If
Speaker 1: you look at our sector allocations, we generally are more
Speaker 1: in favor of, for example, the technology space, which obviously
Speaker 1: plays into the AI theme and so forth, some of
Speaker 1: the deeper cyclicals, and also some of the more defensive
Speaker 1: stocks that have higher yields. That's generally been how we're
Speaker 1: deployed in the environment that we're expecting where short end
Speaker 1: rates are coming down, that's generally not as favorable for banks.
Speaker 1: And then if you unpact that, you see that some
Speaker 1: of the industries that are very bank heavy, like Indonesia,
Speaker 1: where the banking sector is over sixty percent of the
Speaker 1: MCAI Indonesia Index. Tight liquidity domestically as well as the
Speaker 1: rate environment that I just described is typically not good
Speaker 1: for their profitability. And so if you've got to constrain
Speaker 1: a profitability for the banks there and the sixty percent
Speaker 1: of the index, that generally put some weight on the
Speaker 1: index overall. So we're underweight Indonesia. I part is the
Speaker 1: consequence of that.
Speaker 3: Just picking out your point there.
Speaker 4: Indonesia also in the past week seems to be reflecting
Speaker 4: these other risks are reminder of the risks and the ems.
Speaker 3: How do you view that market overall?
Speaker 1: Well, as I said, we've been underweight there, and obviously
Speaker 1: there's been political tension and demonstrations and so forth which
Speaker 1: have been weighing on the market. We actually think from
Speaker 1: a fixed income standpoint, a good deal of that is
Speaker 1: priced and if things come down as they appear to
Speaker 1: be doing, then there is some opportunity to receive rates,
Speaker 1: which which basically means to take a more constructive view
Speaker 1: on faxed income. But still, when we stack Indonesia up
Speaker 1: against the rest of the region in terms of earning's
Speaker 1: growth and uncertainty about domestic domestic environment. We think they
Speaker 1: are better alternatives, particularly in North Asia where we're overweight
Speaker 1: China both A and H, overweight Korea, and overweight Japan.
Speaker 1: And I would note that those for those three markets
Speaker 1: have done particularly well this year. The spread between them
Speaker 1: and some of the poor performing markets, which includes Indonesia
Speaker 1: which is another the worst performing market in the region,
Speaker 1: is over forty percentage points this year, which is double
Speaker 1: what the sixteen seventeen percent return on the MASCI indexes
Speaker 1: year today.
Speaker 4: And you see further room to run on the liquidity
Speaker 4: driven rally on the mainland.
Speaker 2: Yes we do, Yes, we do.
Speaker 3: Are well.
Speaker 1: We just raised our CSI three hundred target from forty
Speaker 1: five hundred and forty nine hundred, and that's about you know,
Speaker 1: load of mid teens upside from here, even after gaining
Speaker 1: eleven percent in the last month, in seventeen percent to date.
Speaker 1: And we've had a lot of questions with investors, particularly
Speaker 1: about our conference here, our Asian Leader conference, regarding you know,
Speaker 1: is the aclidity is the liquidity run has it gone
Speaker 1: too far? We have a tool of developed which is
Speaker 1: a retail sentiment barometer which includes eleven to fifteen different
Speaker 1: indicators all about how liquidity and retail sentiment is performing
Speaker 1: on shore, and that suggests that, yes, retail sentiment has elevated,
Speaker 1: but it's nowhere near the extremes that we saw, for example,
Speaker 1: ten years ago, in twenty fifteen, or even in some
Speaker 1: of the recent spikes in the market. So we still
Speaker 1: think that the market's not overextended here and is further
Speaker 1: to run.
Speaker 3: Is it also.
Speaker 4: Partly to do with how policy risk in China has
Speaker 4: been compressed and perhaps partly to do with how the
Speaker 4: Chinese leadership the optics surrounding the stock market.
Speaker 3: Do you think that is also potentially a driver here?
Speaker 1: That's very much part of an input to our thought process.
Speaker 1: I mean, for example, when Teaching Ping met in February
Speaker 1: with all the tech leaders, that clearly signaled a shift
Speaker 1: in terms of the perhaps more repressive attitude towards private enterprises.
Speaker 1: We did a big series of reports a month or
Speaker 1: so ago basically calling for the sort of rejuvenation of
Speaker 1: the private owned sector, which is obviously is dominated in
Speaker 1: marketcap terms by many of the tech companies.
Speaker 2: We really very much like these.
Speaker 1: We have a group of stocks you called the prominent ten,
Speaker 1: which we very much favor, and that is part of
Speaker 1: our constructive view of partic on China, h shares, the offshore,
Speaker 1: the offshore stocks.
Speaker 4: What about the policy risk that's coming out of the US.
Speaker 4: We've seen in the past week for those Chinese weave
Speaker 4: as for the chip names in Asia, they're getting revolved.
Speaker 3: How big of a risk are you seeing?
Speaker 1: Well, I mean, this is part of the more fraud
Speaker 1: geopolitical backdrop that we that we find ourselves in. And
Speaker 1: one of the ways that we find to translate that
Speaker 1: backdrop of elevated tension globally is to favor the defense
Speaker 1: spending theme. This is a theme that we've liked for
Speaker 1: well over two years. It's not more popular, it's done
Speaker 1: very very well. We have two baskets on this. It's
Speaker 1: a core Asia Asia defense and aerospace basket as well
Speaker 1: as the defense supply chain, and those are forty to
Speaker 1: fifty percent this year. So we very much like this theme.
Speaker 1: Think it's a long term, five year, ten year structural trend.
Speaker 1: Short term that might be a little bit overextended, but
Speaker 1: in the longer run, we think that it's a theme
Speaker 1: to remain engaged in.
Speaker 3: Short term overall, in the region.
Speaker 4: We've also seen Asia extra pan how they've climbed from
Speaker 4: the April lows. Should we be bracing for some form
Speaker 4: of a correction if so, win Well.
Speaker 1: Thanks using the question, Because we just introduced a new
Speaker 1: tool we call RADAR, which stands for Regional Asia Drawdown
Speaker 1: Risk Model, and it basically is a probabilistic regression model
Speaker 1: that assesses whether there might be some risk of a
Speaker 1: pullback in markets.
Speaker 2: Of varying degrees.
Speaker 1: And the punchline is that after the market, as you
Speaker 1: just said, the broader Regional Index is rallied over thirty
Speaker 1: percent from the April lows without any really any meaningful
Speaker 1: pullback just you know, not even five percent, just two
Speaker 1: three percent pullback at the max, and various momentum indicators
Speaker 1: being a bit stretched, and also valuations going from over
Speaker 1: a sanitary deviation cheap to a sanitation ridge. We think
Speaker 1: that the markets to probably overdo some sort of a
Speaker 1: digestion of those gains.
Speaker 3: Typically September is.
Speaker 1: A week month or the weakest month of the year.
Speaker 2: So if you pulled all.
Speaker 1: That together, it says there might be a risk of
Speaker 1: a bit of an air pocket in markets. But then
Speaker 1: we think that would allow investors to set up for
Speaker 1: what's typically a stronger fourth quarter. So our call here
Speaker 1: is the markets have done very well, they might pull
Speaker 1: back a little bit.
Speaker 2: Here to varying degrees. Korea has already pulled back.
Speaker 1: About five percent or so, and then we think it
Speaker 1: sets us up for good running at the end of
Speaker 1: the year.
Speaker 4: Okay, so watch the month of September. How should we
Speaker 4: be hedging?
Speaker 2: Well, we have some suggestions.
Speaker 1: Not all investors can do this, but if you look
Speaker 1: at volatility that's gone down, the implied volatility for derivative
Speaker 1: contracts or derivative instruments, So whether it's in the form
Speaker 1: of a short data put or maybe a put spread,
Speaker 1: we think that that is a sort of tactical way
Speaker 1: as an overlay for investors who can do that to
Speaker 1: protect some of the downstide risking their portfolio, stay engaged
Speaker 1: and be able to position into what we think will
Speaker 1: be a better fourth quarter run for the end of
Speaker 1: the year.
Speaker 4: Tim, always a pleasure, always amazing, great to have your insights.
Speaker 3: Thank you so much.
Speaker 4: Tim no Is, Chief afat Regional equity strategist at Goldman sach.
Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 2: Asia Edition podcast. Each weekday, we look at the story
Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 2: or anywhere else you listen. Join us again tomorrow for
Speaker 2: insight on the market moves from Hong Kong to Singapore
Speaker 2: and Australia. I'm Doug Prisoner and this is Bloomberg