WEBVTT - Adam Coons on the Markets (Radio)

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<v Speaker 1>Let's get to Adam Coon's He is the chief portfolio

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<v Speaker 1>manager at Winthrop Capital Management on the line from Indianapolis.

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<v Speaker 1>Thanks for being with us, Adam. It's all about the FED.

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<v Speaker 1>We know that this aggression, though, is starting to create

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<v Speaker 1>a little bit of concern and markets. Mohammad l Area

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<v Speaker 1>today saying the FED is slamming on the brakes and

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<v Speaker 1>the economy is beginning to go through the windshield? Is

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<v Speaker 1>he being a little too hyperbolic? First off? Thanks for

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<v Speaker 1>having me done. Um, you know, in some regards, know,

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<v Speaker 1>if you look at what the Bank of England's doing, uh,

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<v Speaker 1>they're basically uh doing the same thing that they're kind

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<v Speaker 1>of putting a stake in the ground. They're saying, we're

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<v Speaker 1>not going to budge and you know, we're going to

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<v Speaker 1>change the narrative that the central banks actually have control

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<v Speaker 1>of the system and we're willing to do whatever it

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<v Speaker 1>takes to gain that control. So when we look at

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<v Speaker 1>what the FEDS narrative has been over the course of

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<v Speaker 1>two two it's been you know, intent on raising interest rates,

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<v Speaker 1>tightening monetary monetary policy and and kind of putting an

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<v Speaker 1>into this this inflation that we've seen. And so it

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<v Speaker 1>seems that they will do that at any cost. Yeah,

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<v Speaker 1>we're getting quite a lot of colorful metapholds. As the

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<v Speaker 1>fit continues to tipening be it going through the window.

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<v Speaker 1>A number of commentators are saying, something's going to break.

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<v Speaker 1>If something does break, what's it gonna look like. Well,

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<v Speaker 1>I think it's important to remember or or think about

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<v Speaker 1>the fact that really what we're experiencing right now is

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<v Speaker 1>is a liquidity issue, and so that that that's the

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<v Speaker 1>driver of these, you know, exceptional moves and guilt, is

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<v Speaker 1>that there's a lack of liquidity. And you're seeing the

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<v Speaker 1>same thing here in the US with with our treasury

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<v Speaker 1>market and and and bonds as a whole. Is that

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<v Speaker 1>there's just no natural buyer right now. And and there's

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<v Speaker 1>there's two parts of that. One is obviously that the

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<v Speaker 1>FED has removed the punch bowl and there's no longer

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<v Speaker 1>that natural buyer of from from the Fed. But also

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<v Speaker 1>the fear and uncertainty of what the next move has

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<v Speaker 1>caused so many across across the street to uh, just

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<v Speaker 1>kind of back away from markets, move into cash and

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<v Speaker 1>wait this out. And so I think what we need

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<v Speaker 1>to think about here is that as this liquidity issue builds.

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<v Speaker 1>It's effectively a circular kind of doom loop where you

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<v Speaker 1>you you see that the lack of liquidity actually pushes

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<v Speaker 1>rates higher and and eventually that that could break the markets.

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<v Speaker 1>And I think that's what everyone is starting to be

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<v Speaker 1>fearful of. And Adam Doug was suggesting before the break

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<v Speaker 1>or wondering if we're at the bottom yet, is the

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<v Speaker 1>worst price then in terms of what's coming down the pipe?

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<v Speaker 1>And is this perhaps a good name time to add

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<v Speaker 1>some quality names? Yeah? So, I mean, you know, it's

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<v Speaker 1>really difficult to call the bottom of any market. So

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<v Speaker 1>what investors should look at his valuation? And and we're

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<v Speaker 1>looking at fixed income markets, we do see this as

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<v Speaker 1>at least the um it will work. We don't want

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<v Speaker 1>to call at the bottom, but but literally the the

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<v Speaker 1>overall peak and an interest rates we see four percent

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<v Speaker 1>on the tenure um kind of as a stopping point

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<v Speaker 1>and while they may go slightly higher, we are extending

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<v Speaker 1>duration across our portfolio. Is because of the conviction behind

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<v Speaker 1>lower interest rates long run. On the equity side, um

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<v Speaker 1>evaluations have become uh much more reasonable. And when you're

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<v Speaker 1>looking at the SMP five dred a sixteen times earnings.

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<v Speaker 1>We do see this as a as an opportunity. We

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<v Speaker 1>are adding uh incrementally at this point where where we

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<v Speaker 1>have cash. But one of the bigger opportunities we're seeing

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<v Speaker 1>across markets is in China and UM. You know this

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<v Speaker 1>is this is a market that has had a very

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<v Speaker 1>difficult year in in the COVID zero policies have have

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<v Speaker 1>really set them back. But when we model this out

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<v Speaker 1>going forward and we see some some changes happening within

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<v Speaker 1>that COVID zero policy, uh, you know, we're actually modeling

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<v Speaker 1>above six percent GDP growth in China in the second

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<v Speaker 1>quarter of two three. Uh. Meanwhile, at the same time,

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<v Speaker 1>we're modeling that that the US economy is hitting a

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<v Speaker 1>recession at that point in the first and second quarter

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<v Speaker 1>of of of two three. So while we still like

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<v Speaker 1>US markets as a whole, when we're looking across the

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<v Speaker 1>universe of you know, investible securities, Uh, you look at Europe,

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<v Speaker 1>it's effectively a train wreck. I mean when you see

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<v Speaker 1>what's happening in in England right now, Germany is is

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<v Speaker 1>in some form of a recession right now, and then

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<v Speaker 1>Japan UM has has outperformed in over the last you

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<v Speaker 1>know year, or so relative to to US markets, and

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<v Speaker 1>we're kind of seeing it begin to hit a wall.

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<v Speaker 1>So when we look outside of the US, China is

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<v Speaker 1>really the bright spot from from a country that uh,

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<v Speaker 1>we see growth potential. We see a lot of companies

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<v Speaker 1>uh that that are you know, cash full machines, great

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<v Speaker 1>business models, and we think the delisting risk is overstated.

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<v Speaker 1>We think that the zero COVID policy is overstated going forward,

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<v Speaker 1>and we think that ultimately, you know, the party's going

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<v Speaker 1>to stand behind uh propelling that economy back to you know,

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<v Speaker 1>kind of the superpower uh form that they were moving towards.

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<v Speaker 1>And when you look at evaluations there, I mean, trading

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<v Speaker 1>at ten times earnings in China right now, it's never

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<v Speaker 1>been cheaper. So I'd be very curious to get some

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<v Speaker 1>themes from you because one of the things that I

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<v Speaker 1>think that's looming for China right now, if the US

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<v Speaker 1>is successful in preventing China from accessing some of the

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<v Speaker 1>super high technology semiconductor technology, that may present a huge

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<v Speaker 1>risk for a lot of high tech in China. Give

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<v Speaker 1>me sixty seconds on the industries that you're focused on

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<v Speaker 1>in China right now. Yeah, So what we're focused more

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<v Speaker 1>on on the kind of software as a service companies

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<v Speaker 1>where they're not as dependent on the actual hardware. So

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<v Speaker 1>when you look at companies like ten Cent, Ali, Baba

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<v Speaker 1>j D, we think those are still the bright spot

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<v Speaker 1>Bay do as well. So while there is some dependency

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<v Speaker 1>on technology either, obviously technology companies uh from from the

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<v Speaker 1>pure dependency on on hardware, like a company like Wowwei,

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<v Speaker 1>who obviously is dependent on on US chips, we wouldn't

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<v Speaker 1>be buying that. But when you're looking at software companies

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<v Speaker 1>that are expanding their footprint across the globe, but those

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<v Speaker 1>are the type of companies that we like. Adam very

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<v Speaker 1>very quickly, Tang seconds you mentioned much earlier in the

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<v Speaker 1>end of view. A lot of people have a cash

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<v Speaker 1>position right now, what's yours Like ours is about five percent,

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<v Speaker 1>and it's going down. We're chipping away at every day, alright,

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<v Speaker 1>Adam Coons will leave it there. Adam is chief portfolio

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<v Speaker 1>manager at Winthrop Capital Manage. Thanks so much for joining

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<v Speaker 1>us on the Bloomberg Daybreak Asia Today.