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Speaker 1: So let's get to I guess this half hour. Lorrain turned.

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Speaker 1: She is director of Asia Equity Research at morning Star

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Speaker 1: and Lorain, I just want to start with those latest

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Speaker 1: COVID numbers out of China that it was talking about

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Speaker 1: another twenty seven thousand U cases reported on Monday. How

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Speaker 1: pivotal is this moment for where COVID policy goes next

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Speaker 1: in China? Yeah, I I do think that the obviously

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Speaker 1: this is a challenge for the the trend and I

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Speaker 1: guess the shift that we saw in policy recently that

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Speaker 1: we're all hoping will continue. I actually don't think that

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Speaker 1: there was going to be anything that changed so far

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Speaker 1: they I don't think there's anything that changes our view

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Speaker 1: that China will shift to a living with COVID policy,

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Speaker 1: but that the gradual the gradual shift is what we're

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Speaker 1: expecting to see. So we're going to get a lot

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Speaker 1: of these ups and downs, and definitely the hospital infrastructure

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Speaker 1: is lacking in in China still, but we would anticipate

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Speaker 1: the cost that it was beginning to bear on the

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Speaker 1: economy is going to become us also going to be

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Speaker 1: a key issue that the government needs to address, and

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Speaker 1: so on that front, we do expect more of a

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Speaker 1: gradual opening towards the middle of three, but we're going

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Speaker 1: to see a lot of ups and downs over the

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Speaker 1: next six months. How useful is the experience of other

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Speaker 1: countries exit from COVID policy? Can you apply that to

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Speaker 1: what we're seeing in China and what do investors need

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Speaker 1: to take note of when thinking of that. I think

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Speaker 1: China is definitely looking at how other Asian countries have

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Speaker 1: come out of it. Um. You know, we're seeing that

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Speaker 1: relaxation in terms of the international travel for example, obviously

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Speaker 1: because the virus is endemic, uh, you know, closing your

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Speaker 1: borders is probably less meaningful at this stage, so that's

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Speaker 1: probably a stigma something that they've taken from other countries.

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Speaker 1: But having UM, but I think the key difference for

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Speaker 1: China is that the health care infrastructure is still not

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Speaker 1: quite It's not in line with you know, first of

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Speaker 1: all countries, and we tend to forget that sometimes UM.

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Speaker 1: And the other thing, of course, is that the vaccination

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Speaker 1: that's been available domestically is also um not necessarily as

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Speaker 1: effective as what we've been getting through mr NA vaccines UM.

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Speaker 1: So those are two key issues. I think the government

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Speaker 1: is obviously taking into consideration. Um, but I think the

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Speaker 1: economic issues are also beginning to weigh. So you're going

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Speaker 1: to get this sort of back and forth over the

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Speaker 1: next few months. And Lorraine, I just want to get

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Speaker 1: your view on Chinese equities at the moment. Not been

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Speaker 1: a great year for the Shanghai composite off by about

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Speaker 1: just a shade under folding percent at the moment. But

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Speaker 1: as this reopening narrative game steam, Yes, they'll probably be

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Speaker 1: bumps on the road. What's your outlook for the rest

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Speaker 1: of the year and the first quarter of three, Yeah,

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Speaker 1: so I think things will sort of bump along at

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Speaker 1: the current level. Um. I do think that as we

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Speaker 1: as we you know, one of the things was you

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Speaker 1: know less you know twelve monuths ago. We knew that well,

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Speaker 1: you know two was going to be a little bit

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Speaker 1: more challenging because we were coming from a space where

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Speaker 1: we didn't have the discounts to the valuations that we're

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Speaker 1: seeing now. And obviously we were at a level whereby

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Speaker 1: the FED was you know, starting to raise rates. So

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Speaker 1: heading into tree, we're a little bit more optimistic. You know,

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Speaker 1: markets are trading at about discount to our fair value estimates,

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Speaker 1: and they were also expecting the worst of the being

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Speaker 1: the FED rate hiking to peak in the probably around

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Speaker 1: the you know, the end of first quarter in twenty three.

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Speaker 1: So we do think that there's more positives into three.

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Speaker 1: So we are hopeful that we're going to see that

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Speaker 1: the market sort of continue their up trend over the

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Speaker 1: next few months as people start to sort of maybe

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Speaker 1: not come in in a big way, but sort of

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Speaker 1: at least recognize that the risks are a little bit

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Speaker 1: less um um, you know, the significant going forward, and

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Speaker 1: they start to sort of reallocate funds back into equities.

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Speaker 1: When the rest of the world started to reopen, we

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Speaker 1: saw growth come roaring back, but with it, inflation came

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Speaker 1: roaring back as well. Is this the scenario that you

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Speaker 1: you foresee in China? I think China. I think for China.

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Speaker 1: There are a few things. Uh, it's hard to say

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Speaker 1: that the inflation is going to be that significant. Um.

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Speaker 1: A lot of the labor issues that forced the high

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Speaker 1: inflation rates that say, in in Europe or in the States,

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Speaker 1: are probably not going to be as dominant a factor

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Speaker 1: in China, for example. So we and and on top

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Speaker 1: of that, you know, some of the inputs that are

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Speaker 1: imported like oil and gas, energy costs. UM. I think

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Speaker 1: that's determined in part by what's going on with the

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Speaker 1: Ukraine wars. So we don't really anticipate and increment, you know,

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Speaker 1: so much of an increase in inflation as China reopens UM.

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Speaker 1: The The other issue, of course, is that real estate

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Speaker 1: has been down to activity in terms of that element,

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Speaker 1: in terms of construction activity has been weeks, so we're

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Speaker 1: not seeing that same sort of pressure on building materials

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Speaker 1: activities as well in China at the moment. So overall,

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Speaker 1: I don't really We sort of expect inflation to sort

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Speaker 1: of um, stay at the historical levels, but to not

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Speaker 1: be exceedingly high. You mentioned property, and we've had a

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Speaker 1: couple of guests from Moodies over the past couple of

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Speaker 1: days that have painted a somewhat grim outlook for the

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Speaker 1: property sector in China. Support from the government notwithstanding. So

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Speaker 1: just quickly, what's your outlook there. Yeah, we think this

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Speaker 1: is this is the whole real estate space, and China

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Speaker 1: is going to take a couple of years at least

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Speaker 1: to sort of stabilize in that sense. We're expecting to

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Speaker 1: see the structures go on obviously for a lot of

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Speaker 1: the private sector developers. At the end of the day,

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Speaker 1: I think, you know, the government is definitely trying to

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Speaker 1: uh resistitate the sector right now and bring back some

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Speaker 1: consumer home buyer confidence. I think that's important, important to

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Speaker 1: do um But you know, for there, we shouldn't forget

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Speaker 1: their main impetus, which was to sort of clean up

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Speaker 1: the high debt levels that were prevalent in the sector

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Speaker 1: and some of the practices of shifting cash from project

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Speaker 1: one project to another, so that I think those main

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Speaker 1: aims don't change. So we should be aware that it's

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Speaker 1: going to take a while, alright. Lorent Tan, director of

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Speaker 1: Asia Equity Research at Morning Stuff, thanks so much for

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Speaker 1: joining us.