1 00:00:00,080 --> 00:00:02,639 Speaker 1: We're going to take a closer look at today's market 2 00:00:02,680 --> 00:00:05,400 Speaker 1: action with our guest John Woods from Credit Suite. Will 3 00:00:05,440 --> 00:00:07,560 Speaker 1: do that after we update two of the Sours top 4 00:00:07,600 --> 00:00:11,720 Speaker 1: business stories. We begin with the top auditor watchdog in 5 00:00:11,760 --> 00:00:16,440 Speaker 1: the US insisting Chinese firms comply with requirements on financial 6 00:00:16,480 --> 00:00:19,439 Speaker 1: disclosure and leaving a listing on either the New York 7 00:00:19,440 --> 00:00:22,840 Speaker 1: Stock Exchange or the NASDAC. Well, that's simply not a solution. 8 00:00:23,200 --> 00:00:26,840 Speaker 1: Erica Williams is chair of the Public Company Accounting Oversight Board. 9 00:00:26,920 --> 00:00:30,360 Speaker 1: She told us the inspection authority of the Oversight Board 10 00:00:30,520 --> 00:00:34,400 Speaker 1: is retrospective. That means the board could still demand work 11 00:00:34,400 --> 00:00:38,000 Speaker 1: papers from those Chinese firms even after they leave an 12 00:00:38,040 --> 00:00:41,880 Speaker 1: American exchange voluntarily. We need to make sure that we 13 00:00:41,960 --> 00:00:45,640 Speaker 1: are able to completely investigate and inspecting. The h f 14 00:00:45,720 --> 00:00:49,080 Speaker 1: c A is very clear. We have to have complete access, 15 00:00:49,120 --> 00:00:51,839 Speaker 1: no loopholes, and no exception. Now. Williams went on to 16 00:00:51,880 --> 00:00:55,040 Speaker 1: say more than fifty countries have given the US authority 17 00:00:55,040 --> 00:00:59,160 Speaker 1: to access those work papers from Chinese companies. China and 18 00:00:59,280 --> 00:01:03,280 Speaker 1: Hong Kong are the only ones that refuse. Well. Later today, 19 00:01:03,320 --> 00:01:05,440 Speaker 1: there is a Bank of Australia is expected to lift 20 00:01:05,480 --> 00:01:08,000 Speaker 1: its key interest rate by fifty basis points for a 21 00:01:08,080 --> 00:01:10,679 Speaker 1: third month in a row. The Bloomberg Survey of economists 22 00:01:10,720 --> 00:01:13,320 Speaker 1: expects the ABA to raise its key rate to one eight. 23 00:01:14,280 --> 00:01:15,960 Speaker 1: If it comes to pass. The r b A is 24 00:01:16,000 --> 00:01:18,679 Speaker 1: combined tightening since May would be a hundred and seventy 25 00:01:18,680 --> 00:01:21,800 Speaker 1: five basis points, and that is the biggest increase inside 26 00:01:21,840 --> 00:01:26,560 Speaker 1: six months, since this may be Australia's steepest tiening of 27 00:01:26,600 --> 00:01:30,320 Speaker 1: monetary policy in a generation. And Bloomberg Economics also sees 28 00:01:30,360 --> 00:01:34,040 Speaker 1: the r b A raising its inflation forecast. John Woods 29 00:01:34,120 --> 00:01:36,240 Speaker 1: is our guest for the half hour. John is a 30 00:01:36,360 --> 00:01:38,800 Speaker 1: pack c io at Credit Sweeze. He joins from our 31 00:01:38,840 --> 00:01:42,240 Speaker 1: studios in Hong Kong. John, great to see you virtually. 32 00:01:42,440 --> 00:01:44,360 Speaker 1: Thanks for being with us on the program. So much 33 00:01:44,400 --> 00:01:47,360 Speaker 1: to unpack. There is obviously the geopolitical risk that we've 34 00:01:47,360 --> 00:01:50,840 Speaker 1: been talking a lot about US China. But let's take 35 00:01:50,840 --> 00:01:53,440 Speaker 1: a step back and talk about where the global economy 36 00:01:53,560 --> 00:01:55,080 Speaker 1: is right now in the face of a lot of 37 00:01:55,120 --> 00:01:57,840 Speaker 1: the week pm I data that we have seen. Right now, 38 00:01:58,080 --> 00:02:01,200 Speaker 1: what is your sense on where the globe economy stands 39 00:02:01,200 --> 00:02:04,080 Speaker 1: at the moment. Well, I think we're very firmly moving 40 00:02:04,120 --> 00:02:08,280 Speaker 1: away from inflation risks and now focusing really on a slowdown, 41 00:02:08,320 --> 00:02:13,519 Speaker 1: possibly a synchronized global slowdown. That's evident in all the 42 00:02:13,600 --> 00:02:17,760 Speaker 1: major economic centers, but I think most explicitly in the Eurozone, 43 00:02:18,240 --> 00:02:25,120 Speaker 1: where now Credit Suite is forecasting slightly above probability of recession, 44 00:02:25,160 --> 00:02:29,600 Speaker 1: and just to say that compares to about probability in 45 00:02:29,680 --> 00:02:33,200 Speaker 1: the United States so very much. We are now looking 46 00:02:33,280 --> 00:02:36,120 Speaker 1: at bond yields, we're looking at slopes of yield curves, 47 00:02:36,120 --> 00:02:41,120 Speaker 1: and we're looking at expectations for FED funds futures, which 48 00:02:41,200 --> 00:02:44,200 Speaker 1: clearly have diminished over the last I want to say 49 00:02:44,240 --> 00:02:48,160 Speaker 1: two three weeks, is this new focus on growth takes 50 00:02:48,160 --> 00:02:51,640 Speaker 1: center stage. You talked there about looking at the treasury market. 51 00:02:51,639 --> 00:02:54,440 Speaker 1: Do you think yields are really properly reflecting the impact 52 00:02:54,480 --> 00:02:59,679 Speaker 1: of reduced economic activity. We suspect actually that there's probably 53 00:02:59,760 --> 00:03:02,720 Speaker 1: a little more stability, a little more consolidation around these 54 00:03:02,840 --> 00:03:07,640 Speaker 1: levels as the FEDS interest rate intentions become a little 55 00:03:07,680 --> 00:03:11,400 Speaker 1: more apparent. For example, we're calling for something close to 56 00:03:11,480 --> 00:03:16,040 Speaker 1: fifty basis points in the next hike, followed by either 57 00:03:16,880 --> 00:03:20,079 Speaker 1: another fifty or twenty five depending on the front loading. 58 00:03:20,800 --> 00:03:24,440 Speaker 1: My sense is once the Fed is fully priced in, 59 00:03:25,080 --> 00:03:27,839 Speaker 1: we can expect to see yields tick a little lower, 60 00:03:27,840 --> 00:03:30,160 Speaker 1: and of course that's already happening now, particularly as you 61 00:03:30,200 --> 00:03:34,800 Speaker 1: mentioned pre mis although beating expectations, nevertheless in the United 62 00:03:34,800 --> 00:03:37,520 Speaker 1: States are still taking lower, John, Isn't there a risk? Though? 63 00:03:37,840 --> 00:03:39,680 Speaker 1: I agree with what you're saying in terms of the 64 00:03:39,680 --> 00:03:42,560 Speaker 1: outlook for weaker growth, But the question is whether or 65 00:03:42,560 --> 00:03:45,120 Speaker 1: not the FED and other central banks are able to 66 00:03:45,160 --> 00:03:47,880 Speaker 1: get inflation down. And if that is not the case 67 00:03:47,920 --> 00:03:51,560 Speaker 1: and we're having to deal with this stagflationary environment, isn't 68 00:03:51,560 --> 00:03:55,120 Speaker 1: that a real risk right now? Honestly, you put your 69 00:03:55,120 --> 00:03:58,200 Speaker 1: finger on on the complete and utter risk at the 70 00:03:58,200 --> 00:04:01,200 Speaker 1: market is very much focused on you. In many respects. 71 00:04:01,240 --> 00:04:03,880 Speaker 1: The inflation shocks, as we all know, are very much 72 00:04:04,400 --> 00:04:08,040 Speaker 1: supply side driven, and the FED can only reasonably controlled 73 00:04:08,080 --> 00:04:10,720 Speaker 1: the demand side. And and this is the conundrum that 74 00:04:10,800 --> 00:04:13,680 Speaker 1: actually not only the FED, but frankly pretty much every 75 00:04:13,720 --> 00:04:17,279 Speaker 1: major central banks in the world face, And right now 76 00:04:17,400 --> 00:04:19,480 Speaker 1: we are in, I have to say, a stagflation or 77 00:04:19,560 --> 00:04:22,800 Speaker 1: environment of slowing growth and rising inflation. I do think 78 00:04:22,800 --> 00:04:28,919 Speaker 1: peak inflation is either at this month or next month, 79 00:04:29,320 --> 00:04:32,800 Speaker 1: and I suspect headline cp I will probably tick lower 80 00:04:33,080 --> 00:04:36,120 Speaker 1: in subsequent months. But I absolutely do not believe, and 81 00:04:36,120 --> 00:04:38,400 Speaker 1: I don't think anyone else reasonably does, that inflation is 82 00:04:38,400 --> 00:04:41,080 Speaker 1: going to go back to pre virus levels. I suspect 83 00:04:41,120 --> 00:04:44,839 Speaker 1: there's going to be quite a substantial premium that exists 84 00:04:44,839 --> 00:04:49,400 Speaker 1: and which will ensure that interest rates remain elevated versus 85 00:04:49,480 --> 00:04:51,800 Speaker 1: pre virus levels, and of course that leads to the 86 00:04:51,800 --> 00:04:55,320 Speaker 1: stag inflation thesis somewhat. So we have those concerns, but 87 00:04:55,360 --> 00:04:58,039 Speaker 1: we also have these geopolitical tensions between China and the 88 00:04:58,120 --> 00:05:01,279 Speaker 1: US simmering and very much in the forefront of the 89 00:05:01,320 --> 00:05:03,560 Speaker 1: news today. How does all that kind of play into 90 00:05:03,920 --> 00:05:08,240 Speaker 1: the market action. We're certainly seeing Haven's bid. I mean 91 00:05:08,279 --> 00:05:11,040 Speaker 1: absolutely that the safe haven story I think is going 92 00:05:11,080 --> 00:05:12,839 Speaker 1: to remain very current for as long as we have 93 00:05:12,920 --> 00:05:16,760 Speaker 1: these geopolitical concerns. And I I also say, actually, how 94 00:05:16,839 --> 00:05:21,880 Speaker 1: geopolitical concerns can subsequently impact inflation expectations as well. And 95 00:05:21,920 --> 00:05:26,320 Speaker 1: of course food in food price inflation is very current 96 00:05:27,360 --> 00:05:31,960 Speaker 1: in the Ukraine situation and context, so it's something that 97 00:05:32,000 --> 00:05:34,880 Speaker 1: we are clearly focused on. But almost by definition a 98 00:05:34,920 --> 00:05:38,760 Speaker 1: crisis is very hard to predict, and I think the 99 00:05:38,800 --> 00:05:43,919 Speaker 1: market essentially remains somewhat on the sidelines. I would really 100 00:05:43,960 --> 00:05:46,720 Speaker 1: focus though, on the the year to date performance of 101 00:05:47,320 --> 00:05:50,400 Speaker 1: the whole complex of risk assets and compare it to 102 00:05:50,640 --> 00:05:54,520 Speaker 1: the performance in July. It's almost the mirror image. It's 103 00:05:54,600 --> 00:05:58,800 Speaker 1: all almost completely the opposite. And one of the standing 104 00:05:58,839 --> 00:06:01,880 Speaker 1: sets of advice we prefer clients is time in the 105 00:06:01,960 --> 00:06:04,360 Speaker 1: market rather than timing the market. Let's have a look 106 00:06:04,400 --> 00:06:06,719 Speaker 1: at what you're thinking in terms of China, John, because 107 00:06:06,760 --> 00:06:10,679 Speaker 1: we saw the cs I three hundred down seven in July, 108 00:06:11,080 --> 00:06:14,800 Speaker 1: under performing the SNP five hundred the most since kind 109 00:06:14,800 --> 00:06:17,680 Speaker 1: of I guess erasing all of that, reopening your floria 110 00:06:17,760 --> 00:06:19,640 Speaker 1: we saw in June. What leads you to still be 111 00:06:19,720 --> 00:06:23,960 Speaker 1: overweight China here. Well, we're still supportive and positive and 112 00:06:24,120 --> 00:06:27,720 Speaker 1: focused on the policy support that is being provided and 113 00:06:27,760 --> 00:06:31,880 Speaker 1: we expect will be actually accelerated in the next couple 114 00:06:31,880 --> 00:06:35,760 Speaker 1: of quarters, particularly ahead of the senior leadership elections in 115 00:06:35,839 --> 00:06:38,520 Speaker 1: the fourth quarter. This is very much, as I say, 116 00:06:38,560 --> 00:06:42,120 Speaker 1: a policy driven story. We believe that the amount of 117 00:06:42,560 --> 00:06:46,480 Speaker 1: fiscal stimulus that is being provided to the economy almost 118 00:06:46,560 --> 00:06:50,960 Speaker 1: inevitably will support and spill over into the equity markets. 119 00:06:51,880 --> 00:06:56,840 Speaker 1: We went overweight towards the mid part of June. Since then, 120 00:06:56,880 --> 00:07:01,120 Speaker 1: we have seen out performance across the mayor your markets, although, 121 00:07:01,160 --> 00:07:05,000 Speaker 1: as you correctly point out, this export extraordinary some would 122 00:07:05,040 --> 00:07:09,000 Speaker 1: say spectacular out performance by US markets during July did 123 00:07:09,040 --> 00:07:13,080 Speaker 1: erode some of that out performance. But nevertheless, we're in 124 00:07:13,120 --> 00:07:15,400 Speaker 1: this for the long game. This is not a sort 125 00:07:15,440 --> 00:07:18,840 Speaker 1: of a ten day twenty day tactical trade that we 126 00:07:18,960 --> 00:07:21,920 Speaker 1: recommended to clients. We do think they're sustained upside and 127 00:07:22,320 --> 00:07:25,960 Speaker 1: are holding the course. Do you understand the risk to 128 00:07:26,280 --> 00:07:29,760 Speaker 1: the financial system in China stemming from the property crisis 129 00:07:29,760 --> 00:07:33,080 Speaker 1: to be significant or should we not be so concerned 130 00:07:33,120 --> 00:07:36,400 Speaker 1: about that since many of the banks are essentially stayed 131 00:07:36,400 --> 00:07:39,840 Speaker 1: owned and they would be able to absorb any any 132 00:07:39,880 --> 00:07:46,240 Speaker 1: significant problem with distress debt. This is a meaningful, some 133 00:07:46,320 --> 00:07:52,240 Speaker 1: would say critical risk facing China's broad economy. Let's not 134 00:07:52,280 --> 00:07:55,600 Speaker 1: forget China's property sector is the single largest asset class 135 00:07:55,600 --> 00:07:59,080 Speaker 1: in the world UH and the de leveraging campaign that 136 00:07:59,160 --> 00:08:01,640 Speaker 1: has been away for the last i want to say, 137 00:08:01,640 --> 00:08:04,640 Speaker 1: two and a half years or so clearly is impacting 138 00:08:04,640 --> 00:08:10,080 Speaker 1: the solvency UH and credit worthiness of the sector. To date. 139 00:08:10,160 --> 00:08:13,640 Speaker 1: The government is holding firm on its so called three 140 00:08:13,680 --> 00:08:16,120 Speaker 1: red lines Frankly, I can be at toll surprised if 141 00:08:16,160 --> 00:08:20,560 Speaker 1: those become three pink lines, as some of the leverage 142 00:08:20,600 --> 00:08:24,760 Speaker 1: restrictions are diluted somewhat, and the government does allow a 143 00:08:24,800 --> 00:08:28,720 Speaker 1: degree of flexibility back into the sector. But right now 144 00:08:29,440 --> 00:08:33,560 Speaker 1: there is obviously the government holding the reins to credit 145 00:08:34,200 --> 00:08:37,200 Speaker 1: and we do feel that it has the flexibility and 146 00:08:37,240 --> 00:08:41,520 Speaker 1: the resources to support the sector um for the foreseeable future. 147 00:08:42,280 --> 00:08:44,679 Speaker 1: But it is absolutely a concern that we're very much 148 00:08:44,720 --> 00:08:46,280 Speaker 1: focused on, and I have to say that we've been 149 00:08:46,320 --> 00:08:52,280 Speaker 1: actually advising clients to avoid entirely, particularly China property bonds 150 00:08:52,320 --> 00:08:54,920 Speaker 1: now for the last year or so. You talked earlier 151 00:08:54,960 --> 00:08:58,000 Speaker 1: about central banks trying to get ahead of the inflation peace, 152 00:08:58,120 --> 00:09:00,880 Speaker 1: and in focus today is the Reserve of Australia. If 153 00:09:00,880 --> 00:09:03,160 Speaker 1: we continue to see this aggressive tightening though by so 154 00:09:03,200 --> 00:09:06,160 Speaker 1: many developed central banks, how much does that way on 155 00:09:06,640 --> 00:09:09,120 Speaker 1: economies that we certainly sort of feel that the ABA 156 00:09:09,200 --> 00:09:12,640 Speaker 1: could be behind the pack here. Well, the ib A 157 00:09:12,800 --> 00:09:15,840 Speaker 1: of course finds itself in a somewhat challenging and difficult 158 00:09:15,880 --> 00:09:19,560 Speaker 1: position advising previously that rate hikes were off the table. 159 00:09:19,880 --> 00:09:23,720 Speaker 1: That's very clearly not the case. And perhaps there is 160 00:09:23,720 --> 00:09:26,200 Speaker 1: a degree of catch up in terms of trying to 161 00:09:26,240 --> 00:09:29,000 Speaker 1: get to to to ahead of the curve or even 162 00:09:29,000 --> 00:09:33,000 Speaker 1: flat to the curve. Obviously there are some pretty embedded 163 00:09:33,200 --> 00:09:37,320 Speaker 1: uh and whereasome inflation pressures, not least stemming from the 164 00:09:37,360 --> 00:09:40,160 Speaker 1: demand side, which of course is all derived from wages. 165 00:09:40,480 --> 00:09:42,360 Speaker 1: So I do think it's necessary that our b A 166 00:09:42,720 --> 00:09:46,760 Speaker 1: is is seen to raise by you know, fifty basis 167 00:09:46,800 --> 00:09:49,880 Speaker 1: points or so and subsequent hikes before the end of 168 00:09:49,920 --> 00:09:55,040 Speaker 1: the year. Inflation is a critical risk to the Australian economy, 169 00:09:55,200 --> 00:09:58,360 Speaker 1: particularly regarding the resources and housing sector, and so we 170 00:09:58,440 --> 00:10:02,280 Speaker 1: think that this front loaded tightening is probably inevitable and 171 00:10:02,320 --> 00:10:06,040 Speaker 1: actually also necessary. John thirty seconds. If you had to 172 00:10:06,080 --> 00:10:09,680 Speaker 1: be long and industry group right now or a specific market, 173 00:10:10,000 --> 00:10:12,679 Speaker 1: what would it be. Well, right now, we are very 174 00:10:12,760 --> 00:10:17,960 Speaker 1: much focused on US equities, particularly the tech sector in 175 00:10:18,000 --> 00:10:22,960 Speaker 1: our view, as growth decelerates, as interest rates are repriced downward. 176 00:10:23,640 --> 00:10:27,040 Speaker 1: This is protect precisely the macro environment that we think 177 00:10:27,080 --> 00:10:30,280 Speaker 1: tech outperforms, and indeed we're seeing signs of that already, 178 00:10:30,320 --> 00:10:33,959 Speaker 1: particularly in the NASDAK where you know, essentially breaking to 179 00:10:34,040 --> 00:10:36,400 Speaker 1: new highs. This is the recommendation we make into clients 180 00:10:36,480 --> 00:10:39,160 Speaker 1: right now. John always a pleasure. John Woods Asia Pacific 181 00:10:39,160 --> 00:10:41,400 Speaker 1: ce Io at credit see in our Hong Kong studio. 182 00:10:41,600 --> 00:10:42,400 Speaker 1: This is Bloomberg.