1
00:00:00,080 --> 00:00:02,600
Speaker 1: Let's get to our guest. Gareth Nicholson is with us.

2
00:00:02,600 --> 00:00:05,559
Speaker 1: Gareth is the c i O also head of Discretionary

3
00:00:05,600 --> 00:00:10,720
Speaker 1: portfolio management at Normura International Wealth Management, and Gareth joins

4
00:00:10,760 --> 00:00:13,840
Speaker 1: from the Lion City of Singapore. I'm wondering whether you're

5
00:00:13,880 --> 00:00:17,119
Speaker 1: all in on this COVID trade now, the relaxation of

6
00:00:17,160 --> 00:00:19,280
Speaker 1: the rules, not only on the main line, but in

7
00:00:19,360 --> 00:00:22,319
Speaker 1: Hong Kong as well. Yesterday, I'm sure you saw the

8
00:00:22,360 --> 00:00:24,680
Speaker 1: Hang Sang It was up nearly three percent and that

9
00:00:25,200 --> 00:00:28,240
Speaker 1: tech sub index was up nearly six percent. Are you

10
00:00:28,280 --> 00:00:34,880
Speaker 1: all in on China right now? Gareth, Good morning, Great question. Yet, China,

11
00:00:35,080 --> 00:00:37,160
Speaker 1: as a growth engine relative with the rest of the world,

12
00:00:37,280 --> 00:00:39,600
Speaker 1: has a lot going for it, and this reopening trade

13
00:00:39,680 --> 00:00:42,800
Speaker 1: is is particularly interesting for us given sentiment has been

14
00:00:42,840 --> 00:00:46,559
Speaker 1: so bad, optics hasn't been great, and positioning is is

15
00:00:46,560 --> 00:00:49,239
Speaker 1: still really underweight. We think there's still space to go

16
00:00:49,280 --> 00:00:53,880
Speaker 1: in China for the reopening trade. Absolutely. Obviously some risks

17
00:00:53,920 --> 00:00:56,680
Speaker 1: ahead though as well. This is not going to be

18
00:00:56,840 --> 00:01:02,480
Speaker 1: a smooth process. How do your head? So, yeah, tuesdays forward,

19
00:01:02,520 --> 00:01:04,440
Speaker 1: one step back. I mean, I think the whole world

20
00:01:04,480 --> 00:01:07,480
Speaker 1: in Q one is going to be a very difficult position. Uh,

21
00:01:07,520 --> 00:01:10,679
Speaker 1: you know Europe agree, no growth, US really trying to

22
00:01:10,680 --> 00:01:13,800
Speaker 1: show down growth. Asia they're trying to build up growth.

23
00:01:13,800 --> 00:01:17,000
Speaker 1: How we're hedging is we're focusing on where is they're

24
00:01:17,000 --> 00:01:19,720
Speaker 1: the biggest tail one. So in China, the companies we

25
00:01:19,880 --> 00:01:23,200
Speaker 1: like are going to be focusing around resilience. That would

26
00:01:23,240 --> 00:01:26,800
Speaker 1: be you know, resilience or security, around energy, around food,

27
00:01:27,160 --> 00:01:32,360
Speaker 1: around access to technology, around defense, um and these are

28
00:01:32,360 --> 00:01:35,600
Speaker 1: the places that are going to have government support UM

29
00:01:36,040 --> 00:01:38,560
Speaker 1: And at the same time, you know, we're going to

30
00:01:38,680 --> 00:01:41,160
Speaker 1: have the opening trade. We also like places that are

31
00:01:41,200 --> 00:01:43,760
Speaker 1: close to China, so Thailand, for instance, Thailand is going

32
00:01:43,760 --> 00:01:46,759
Speaker 1: to benefit usually from the tourists push that is still

33
00:01:46,800 --> 00:01:50,160
Speaker 1: coming through. And we also like Japan, which also benefit

34
00:01:50,280 --> 00:01:52,440
Speaker 1: largely from China reopening and the rest of the world

35
00:01:52,600 --> 00:01:56,080
Speaker 1: so on to revisit Asia again as well. So the

36
00:01:56,160 --> 00:01:58,960
Speaker 1: idea is to use the whole of Asia as a

37
00:01:59,040 --> 00:02:01,680
Speaker 1: hedge for slowly move being into China, albeit at some

38
00:02:01,720 --> 00:02:03,480
Speaker 1: parts we're going to move in quicker than others. Yeah,

39
00:02:03,560 --> 00:02:05,720
Speaker 1: I'm hearing a couple of things here. Let's first talk

40
00:02:05,760 --> 00:02:08,680
Speaker 1: about the China trade and what I'm hearing is more

41
00:02:09,400 --> 00:02:12,640
Speaker 1: state owned enterprise related rather than the small tech companies.

42
00:02:12,680 --> 00:02:14,840
Speaker 1: I mean, if you're talking about a recovery that's going

43
00:02:14,840 --> 00:02:19,119
Speaker 1: to be supported by government steps or government stimulus, don't

44
00:02:19,160 --> 00:02:21,880
Speaker 1: you want to be more exposed to s o E

45
00:02:22,080 --> 00:02:25,040
Speaker 1: s and how do you go about doing that? Well?

46
00:02:25,760 --> 00:02:28,680
Speaker 1: China is interesting, I mean the there's liquidity and not

47
00:02:28,840 --> 00:02:30,880
Speaker 1: just the top fifty names, in the top hundred and

48
00:02:30,880 --> 00:02:33,760
Speaker 1: fifty names, so there's a lot of different options and

49
00:02:33,800 --> 00:02:35,760
Speaker 1: a lot of different spaces to get in the A shares.

50
00:02:35,800 --> 00:02:38,680
Speaker 1: The domestic market is for us particularly interesting because that's

51
00:02:38,720 --> 00:02:41,320
Speaker 1: normally where you get most of the government supports compared

52
00:02:41,360 --> 00:02:44,359
Speaker 1: to the eight shares, which are you know, more international,

53
00:02:44,840 --> 00:02:46,800
Speaker 1: So we prefer some of the A shares. Some of

54
00:02:46,800 --> 00:02:49,560
Speaker 1: the small cap in there as well is interesting. Um.

55
00:02:49,600 --> 00:02:51,840
Speaker 1: Maybe if they're aligned with the government, they don't have

56
00:02:51,880 --> 00:02:54,280
Speaker 1: to be s o UM, but as long as the

57
00:02:54,320 --> 00:02:56,520
Speaker 1: aligned with the government initiative. And there's been a lot

58
00:02:56,560 --> 00:02:59,200
Speaker 1: of work around this from our team to try highlight

59
00:02:59,240 --> 00:03:01,680
Speaker 1: where the spaces, so it is really about diving into

60
00:03:01,680 --> 00:03:04,160
Speaker 1: the details to your point, finding out the spaces that

61
00:03:04,160 --> 00:03:06,600
Speaker 1: are going to be most supported and start there. Um.

62
00:03:06,720 --> 00:03:09,280
Speaker 1: There are obviously yours opportunities where some names have just

63
00:03:09,320 --> 00:03:11,680
Speaker 1: been banged up so badly. The positioning is so negative

64
00:03:11,720 --> 00:03:14,680
Speaker 1: that from tactical perspective, you can play around. We're seeing

65
00:03:14,680 --> 00:03:17,160
Speaker 1: in the private bank space a lot of structure products

66
00:03:17,320 --> 00:03:19,640
Speaker 1: that are looking to, you know, minimize the downside but

67
00:03:20,200 --> 00:03:23,359
Speaker 1: take opportunity on the upside um, and that's become very

68
00:03:23,360 --> 00:03:26,040
Speaker 1: popular for for China trades at the moment. There are

69
00:03:26,040 --> 00:03:28,120
Speaker 1: other ways to play this too. We've seen the iron

70
00:03:28,200 --> 00:03:30,639
Speaker 1: or price CU up about twelve percent this month. That's

71
00:03:30,680 --> 00:03:33,160
Speaker 1: obviously had a tail when for some of the big

72
00:03:33,160 --> 00:03:35,640
Speaker 1: assi mining companies as well, And that is the Bloomberg

73
00:03:35,720 --> 00:03:38,840
Speaker 1: question of the day. In fact, is our commodities going

74
00:03:38,880 --> 00:03:44,400
Speaker 1: to boom in three on the China reopening story. China

75
00:03:44,480 --> 00:03:49,720
Speaker 1: is a huge, huge, huge engine. It needs the commodities.

76
00:03:49,800 --> 00:03:52,040
Speaker 1: It's going to open up and it's going to start

77
00:03:52,120 --> 00:03:55,320
Speaker 1: producing more. Yes, international demand exports is done for sure,

78
00:03:55,600 --> 00:03:58,120
Speaker 1: but I think there's so much pensive demand in Asia

79
00:03:58,200 --> 00:04:00,880
Speaker 1: in China that yes, commodities is going to get a

80
00:04:00,920 --> 00:04:02,720
Speaker 1: lot of support from For US, this is one of

81
00:04:02,760 --> 00:04:06,440
Speaker 1: the risks because one commodity is still forty three over there.

82
00:04:06,440 --> 00:04:09,040
Speaker 1: I think forty five commodities dollar based, so demand for

83
00:04:09,120 --> 00:04:11,680
Speaker 1: dollars going to push that up. It's likely to you know,

84
00:04:11,760 --> 00:04:14,760
Speaker 1: exports inflation around the world to some point. Uh. And

85
00:04:15,040 --> 00:04:17,240
Speaker 1: this is all in the same time that the FED

86
00:04:17,360 --> 00:04:21,280
Speaker 1: is trying to slow inflation, slow down that that side

87
00:04:21,279 --> 00:04:23,000
Speaker 1: of things. So it is really going to be a

88
00:04:23,000 --> 00:04:26,120
Speaker 1: battle with you know, Asia pushing the growth side of

89
00:04:26,160 --> 00:04:29,080
Speaker 1: things and inflation and the other side of the world

90
00:04:30,120 --> 00:04:32,839
Speaker 1: trying to slow things down. But Garrett, I'm wondering whether

91
00:04:32,920 --> 00:04:35,160
Speaker 1: or not we have to go into the pand up

92
00:04:35,200 --> 00:04:38,159
Speaker 1: demand story. There's I don't believe there's uniformity to it.

93
00:04:38,240 --> 00:04:40,839
Speaker 1: I mean, Okay, in China, yes, because they've been locked

94
00:04:40,839 --> 00:04:43,520
Speaker 1: down now for about three years in one form or another.

95
00:04:43,760 --> 00:04:46,960
Speaker 1: But Japan, I'm wondering whether the pand up demand that

96
00:04:47,040 --> 00:04:53,599
Speaker 1: we saw in Japan is exhausted now Japan. Uh, I

97
00:04:53,680 --> 00:04:56,400
Speaker 1: hear what you're saying that it's much further down the road.

98
00:04:56,400 --> 00:04:59,080
Speaker 1: But Japan, for us, the interesting story is you have

99
00:04:59,200 --> 00:05:02,440
Speaker 1: fundamentals that are pretty strong. You have a developed market

100
00:05:02,960 --> 00:05:06,360
Speaker 1: that is stable. That asset allocation too, is very very low.

101
00:05:06,440 --> 00:05:09,480
Speaker 1: You know, in global markets it's been dwindling of the time,

102
00:05:09,480 --> 00:05:11,520
Speaker 1: and that's because Japan has been very boring. But you

103
00:05:11,640 --> 00:05:15,240
Speaker 1: actually look at Japan now with inflation, with wages growing up,

104
00:05:15,480 --> 00:05:18,680
Speaker 1: with the currency that is weak but strengthening, there's there's

105
00:05:18,720 --> 00:05:20,839
Speaker 1: quite a strong story for Japan to actually be a

106
00:05:20,920 --> 00:05:23,800
Speaker 1: larger part of st allocation for developed markets who will

107
00:05:23,880 --> 00:05:26,440
Speaker 1: still largely see e M is a scary place for

108
00:05:26,440 --> 00:05:28,839
Speaker 1: for most of the first half. We believe, so Japan

109
00:05:28,920 --> 00:05:31,800
Speaker 1: is going to benefit, I think from from that side.

110
00:05:32,200 --> 00:05:35,560
Speaker 1: UH and you know, countries that want access to the

111
00:05:35,600 --> 00:05:38,600
Speaker 1: technology and the products that Japan make, I think are

112
00:05:38,640 --> 00:05:41,800
Speaker 1: still going to still be demanding that. Yeah, you say

113
00:05:41,839 --> 00:05:46,320
Speaker 1: Japan has been boring and it has particularly central bank policy.

114
00:05:46,600 --> 00:05:49,200
Speaker 1: We've got to govern a corona though stepping down early

115
00:05:49,279 --> 00:05:51,720
Speaker 1: in the new year, do you anticipate a more interesting

116
00:05:51,800 --> 00:05:57,040
Speaker 1: b o je interesting question. We had a conference yesterday

117
00:05:57,040 --> 00:05:59,320
Speaker 1: in the Morrow, which obviously is quite a big view

118
00:05:59,360 --> 00:06:04,040
Speaker 1: on Japan. UH and the delicates had sixty percent saying

119
00:06:04,080 --> 00:06:08,479
Speaker 1: they expected yield cover measures to change, whilst on shore

120
00:06:08,800 --> 00:06:12,359
Speaker 1: the it was total opposite, was about they did not

121
00:06:12,480 --> 00:06:16,160
Speaker 1: expect any change. So it seems like people outside the

122
00:06:16,200 --> 00:06:18,840
Speaker 1: country are expecting some sort of change, expecting to see

123
00:06:18,960 --> 00:06:23,360
Speaker 1: policy shifting when leadership change, but at the moment on

124
00:06:23,400 --> 00:06:25,200
Speaker 1: the ground that seems to be no, it's going to

125
00:06:25,279 --> 00:06:27,000
Speaker 1: say the same. So it's very mixed. At the moment.

126
00:06:27,440 --> 00:06:31,280
Speaker 1: Our house called uh expects you know, yan to strengthen,

127
00:06:31,880 --> 00:06:33,920
Speaker 1: but we're not highly convicted that it's going to be

128
00:06:34,000 --> 00:06:36,720
Speaker 1: driven by the change in the yeld curve. Control some

129
00:06:36,800 --> 00:06:39,640
Speaker 1: of the conversation too. I'm sure how to do with

130
00:06:39,720 --> 00:06:42,279
Speaker 1: FED policy, and I'm curious to get the house view

131
00:06:42,400 --> 00:06:46,440
Speaker 1: from Nomura's perspective. Next year, do we see a terminal

132
00:06:46,520 --> 00:06:50,120
Speaker 1: rate that basically tops out at five or do you

133
00:06:50,160 --> 00:06:52,440
Speaker 1: think the risk is that we see higher rates and

134
00:06:52,480 --> 00:06:56,760
Speaker 1: the market is unprepared for that definitely as a real

135
00:06:56,839 --> 00:06:59,599
Speaker 1: risk for sure. I mean our policy is fifty basis

136
00:06:59,640 --> 00:07:02,760
Speaker 1: points now in December, which we don't think as a

137
00:07:02,760 --> 00:07:05,320
Speaker 1: massive U turn. I mean fifty basis points a year

138
00:07:05,320 --> 00:07:07,400
Speaker 1: ago were still seen as a jumbo hike, right, just

139
00:07:07,480 --> 00:07:10,880
Speaker 1: because it's slightly decelerating and we still think it's a

140
00:07:11,360 --> 00:07:13,679
Speaker 1: tightening of the FED. We also see another fifty basis

141
00:07:13,680 --> 00:07:17,360
Speaker 1: points in February and March, and then after that before

142
00:07:17,640 --> 00:07:20,200
Speaker 1: stability until closer to the end of the year, where

143
00:07:20,240 --> 00:07:23,000
Speaker 1: we would expect them to have to turn turn around

144
00:07:23,040 --> 00:07:25,840
Speaker 1: the ship um And that's dependent that we don't have

145
00:07:25,920 --> 00:07:28,000
Speaker 1: the sticky inflation like you talked about, that could come

146
00:07:28,040 --> 00:07:31,560
Speaker 1: from many different places. Energy, commodity, labor markets are still

147
00:07:31,840 --> 00:07:34,400
Speaker 1: you know, showing up pretty strong. UM c p I

148
00:07:34,480 --> 00:07:36,760
Speaker 1: out today. It would be interesting we see moderating down

149
00:07:36,800 --> 00:07:40,520
Speaker 1: to closer to to seven point two five, so it's

150
00:07:40,800 --> 00:07:44,440
Speaker 1: half a percent down. Um, we're talking PPI in the

151
00:07:44,520 --> 00:07:49,880
Speaker 1: US on Friday. Ppo, right right, okay, yeah, sorry PPI yeah. Um,

152
00:07:49,920 --> 00:07:53,400
Speaker 1: just quickly, Gareth, where do you stand on recession risk?

153
00:07:53,520 --> 00:07:55,600
Speaker 1: Is it inevitable or is the Fed going to stick

154
00:07:55,600 --> 00:07:59,800
Speaker 1: that soft landing? Wow, that would be amazing if they do.

155
00:08:00,000 --> 00:08:01,360
Speaker 1: And I think a lot of people are hoping it,

156
00:08:01,480 --> 00:08:04,560
Speaker 1: but but it's it's becoming we believe a much much

157
00:08:04,600 --> 00:08:07,360
Speaker 1: smaller target for them to aim for. I think it's

158
00:08:07,360 --> 00:08:09,760
Speaker 1: going to be difficult. We think it's a done deal

159
00:08:09,800 --> 00:08:13,600
Speaker 1: in Europe. We think Asia will hold up pretty well. Um,

160
00:08:13,600 --> 00:08:16,080
Speaker 1: and we think US is right on the line. And

161
00:08:16,120 --> 00:08:19,040
Speaker 1: me personally, I think we were they're falling over. I

162
00:08:19,040 --> 00:08:23,040
Speaker 1: think we're likely to go into recession alright, Gareth Nicholson,

163
00:08:23,160 --> 00:08:25,280
Speaker 1: We are out of time, but thanks so much for

164
00:08:25,360 --> 00:08:29,200
Speaker 1: joining us on Bloomberg Daybreak Asia. Garett Nicholson is ce

165
00:08:29,320 --> 00:08:33,480
Speaker 1: Io and Head of Discretionary Portfolio Management at Namora International

166
00:08:33,559 --> 00:08:34,559
Speaker 1: Wealth and Management,