Speaker 1: Let's get to Adam Coon's He is the chief portfolio
Speaker 1: manager at Winthrop Capital Management on the line from Indianapolis.
Speaker 1: Thanks for being with us, Adam. It's all about the FED.
Speaker 1: We know that this aggression, though, is starting to create
Speaker 1: a little bit of concern and markets. Mohammad l Area
Speaker 1: today saying the FED is slamming on the brakes and
Speaker 1: the economy is beginning to go through the windshield? Is
Speaker 1: he being a little too hyperbolic? First off? Thanks for
Speaker 1: having me done. Um, you know, in some regards, know,
Speaker 1: if you look at what the Bank of England's doing, uh,
Speaker 1: they're basically uh doing the same thing that they're kind
Speaker 1: of putting a stake in the ground. They're saying, we're
Speaker 1: not going to budge and you know, we're going to
Speaker 1: change the narrative that the central banks actually have control
Speaker 1: of the system and we're willing to do whatever it
Speaker 1: takes to gain that control. So when we look at
Speaker 1: what the FEDS narrative has been over the course of
Speaker 1: two two it's been you know, intent on raising interest rates,
Speaker 1: tightening monetary monetary policy and and kind of putting an
Speaker 1: into this this inflation that we've seen. And so it
Speaker 1: seems that they will do that at any cost. Yeah,
Speaker 1: we're getting quite a lot of colorful metapholds. As the
Speaker 1: fit continues to tipening be it going through the window.
Speaker 1: A number of commentators are saying, something's going to break.
Speaker 1: If something does break, what's it gonna look like. Well,
Speaker 1: I think it's important to remember or or think about
Speaker 1: the fact that really what we're experiencing right now is
Speaker 1: is a liquidity issue, and so that that that's the
Speaker 1: driver of these, you know, exceptional moves and guilt, is
Speaker 1: that there's a lack of liquidity. And you're seeing the
Speaker 1: same thing here in the US with with our treasury
Speaker 1: market and and and bonds as a whole. Is that
Speaker 1: there's just no natural buyer right now. And and there's
Speaker 1: there's two parts of that. One is obviously that the
Speaker 1: FED has removed the punch bowl and there's no longer
Speaker 1: that natural buyer of from from the Fed. But also
Speaker 1: the fear and uncertainty of what the next move has
Speaker 1: caused so many across across the street to uh, just
Speaker 1: kind of back away from markets, move into cash and
Speaker 1: wait this out. And so I think what we need
Speaker 1: to think about here is that as this liquidity issue builds.
Speaker 1: It's effectively a circular kind of doom loop where you
Speaker 1: you you see that the lack of liquidity actually pushes
Speaker 1: rates higher and and eventually that that could break the markets.
Speaker 1: And I think that's what everyone is starting to be
Speaker 1: fearful of. And Adam Doug was suggesting before the break
Speaker 1: or wondering if we're at the bottom yet, is the
Speaker 1: worst price then in terms of what's coming down the pipe?
Speaker 1: And is this perhaps a good name time to add
Speaker 1: some quality names? Yeah? So, I mean, you know, it's
Speaker 1: really difficult to call the bottom of any market. So
Speaker 1: what investors should look at his valuation? And and we're
Speaker 1: looking at fixed income markets, we do see this as
Speaker 1: at least the um it will work. We don't want
Speaker 1: to call at the bottom, but but literally the the
Speaker 1: overall peak and an interest rates we see four percent
Speaker 1: on the tenure um kind of as a stopping point
Speaker 1: and while they may go slightly higher, we are extending
Speaker 1: duration across our portfolio. Is because of the conviction behind
Speaker 1: lower interest rates long run. On the equity side, um
Speaker 1: evaluations have become uh much more reasonable. And when you're
Speaker 1: looking at the SMP five dred a sixteen times earnings.
Speaker 1: We do see this as a as an opportunity. We
Speaker 1: are adding uh incrementally at this point where where we
Speaker 1: have cash. But one of the bigger opportunities we're seeing
Speaker 1: across markets is in China and UM. You know this
Speaker 1: is this is a market that has had a very
Speaker 1: difficult year in in the COVID zero policies have have
Speaker 1: really set them back. But when we model this out
Speaker 1: going forward and we see some some changes happening within
Speaker 1: that COVID zero policy, uh, you know, we're actually modeling
Speaker 1: above six percent GDP growth in China in the second
Speaker 1: quarter of two three. Uh. Meanwhile, at the same time,
Speaker 1: we're modeling that that the US economy is hitting a
Speaker 1: recession at that point in the first and second quarter
Speaker 1: of of of two three. So while we still like
Speaker 1: US markets as a whole, when we're looking across the
Speaker 1: universe of you know, investible securities, Uh, you look at Europe,
Speaker 1: it's effectively a train wreck. I mean when you see
Speaker 1: what's happening in in England right now, Germany is is
Speaker 1: in some form of a recession right now, and then
Speaker 1: Japan UM has has outperformed in over the last you
Speaker 1: know year, or so relative to to US markets, and
Speaker 1: we're kind of seeing it begin to hit a wall.
Speaker 1: So when we look outside of the US, China is
Speaker 1: really the bright spot from from a country that uh,
Speaker 1: we see growth potential. We see a lot of companies
Speaker 1: uh that that are you know, cash full machines, great
Speaker 1: business models, and we think the delisting risk is overstated.
Speaker 1: We think that the zero COVID policy is overstated going forward,
Speaker 1: and we think that ultimately, you know, the party's going
Speaker 1: to stand behind uh propelling that economy back to you know,
Speaker 1: kind of the superpower uh form that they were moving towards.
Speaker 1: And when you look at evaluations there, I mean, trading
Speaker 1: at ten times earnings in China right now, it's never
Speaker 1: been cheaper. So I'd be very curious to get some
Speaker 1: themes from you because one of the things that I
Speaker 1: think that's looming for China right now, if the US
Speaker 1: is successful in preventing China from accessing some of the
Speaker 1: super high technology semiconductor technology, that may present a huge
Speaker 1: risk for a lot of high tech in China. Give
Speaker 1: me sixty seconds on the industries that you're focused on
Speaker 1: in China right now. Yeah, So what we're focused more
Speaker 1: on on the kind of software as a service companies
Speaker 1: where they're not as dependent on the actual hardware. So
Speaker 1: when you look at companies like ten Cent, Ali, Baba
Speaker 1: j D, we think those are still the bright spot
Speaker 1: Bay do as well. So while there is some dependency
Speaker 1: on technology either, obviously technology companies uh from from the
Speaker 1: pure dependency on on hardware, like a company like Wowwei,
Speaker 1: who obviously is dependent on on US chips, we wouldn't
Speaker 1: be buying that. But when you're looking at software companies
Speaker 1: that are expanding their footprint across the globe, but those
Speaker 1: are the type of companies that we like. Adam very
Speaker 1: very quickly, Tang seconds you mentioned much earlier in the
Speaker 1: end of view. A lot of people have a cash
Speaker 1: position right now, what's yours Like ours is about five percent,
Speaker 1: and it's going down. We're chipping away at every day, alright,
Speaker 1: Adam Coons will leave it there. Adam is chief portfolio
Speaker 1: manager at Winthrop Capital Manage. Thanks so much for joining
Speaker 1: us on the Bloomberg Daybreak Asia Today.