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Speaker 1: Let's get to our guest. Clara Chung is with US

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Speaker 1: global market strategist at JP Morgan. She's on the line

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Speaker 1: from Singapore. Clara, thanks for being with us. Let's begin

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Speaker 1: with a look at what happened in the treasury market today,

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Speaker 1: because we had a massive move lower and yields across

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Speaker 1: the US curve. A lot of weak economic data is

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Speaker 1: beginning to filter through, and I'm wondering whether or not

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Speaker 1: you read this as a sign that perhaps the Fed

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Speaker 1: down the road, not right now, but down the road,

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Speaker 1: can be in a position to take its foot off

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Speaker 1: the off the accelerator, if I can use that term

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Speaker 1: in terms of hiking rates. Yeah, hey, good morning. Well

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Speaker 1: we certainly hope so. Uh that you know, as for now,

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Speaker 1: I think inflation still remains throughoutively high. And you know,

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Speaker 1: it's your point about the treasury yield move, um, it

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Speaker 1: really is a reflection of the market pricing in a

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Speaker 1: much higher probability of the session, given that you know,

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Speaker 1: from what we know, the central banks are very committed

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Speaker 1: to fighting this problem, especially um in the developed world

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Speaker 1: like the US and in Europe for example, And as

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Speaker 1: a result, we are starting to see some cracks in

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Speaker 1: economic data. So it's clear that for one, the higher

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Speaker 1: mortgage week starting to hurt things like the housing market,

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Speaker 1: and we're seeing home build of confidence really missing expectations

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Speaker 1: and also existing home sales really fall into two year lows.

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Speaker 1: So hopefully as we get more and more data that

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Speaker 1: comes in that starts to show that, okay, demand is

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Speaker 1: indeed waning, then that can give the said a little

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Speaker 1: bit more ammunition to kind of step back a little

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Speaker 1: as inflation towards the end of finger Clara you talk

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Speaker 1: about cracks there, and you're talking about the mortgage rates

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Speaker 1: as well. We were just talking to a previous guest

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Speaker 1: about renters to facing these higher prices. Do you think

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Speaker 1: that we could already be in a recession? And if not,

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Speaker 1: when we do potentially face one, how deep could that be? Yeah,

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Speaker 1: I think we're not aver session right now and we

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Speaker 1: probably will not be in one for the rest of

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Speaker 1: the year. Uh. The reason why I say that is

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Speaker 1: because if you look at the labor markets, for example,

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Speaker 1: it still remains quite strong with you know, unemployment rate

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Speaker 1: in the law three and the consumer Uh it's also

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Speaker 1: another bright spot. And you know, copper ballot sheets are

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Speaker 1: also reasonably healthy. So you know to question about even

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Speaker 1: if we do get a recession, like how deep can

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Speaker 1: it be? Our base case is that it's not going

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Speaker 1: to be as severe at to one that we saw

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Speaker 1: or in the Great Financial Crisis, because the consumer is

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Speaker 1: quite resilient this time, and consumer is two thirds of

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Speaker 1: the United economy. The ECB through the foreign exchange a

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Speaker 1: bit of a curveball today with a fifty basis point

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Speaker 1: rate high can in in turn helped to weaken the

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Speaker 1: dollar a bit. But as you well know, Clara, the

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Speaker 1: dollar has been on an enormous rally here and I'm

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Speaker 1: wondering whether or not given everything you're saying, there could

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Speaker 1: be more dollar strength before there's dollar weakness. Yeah, for sure.

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Speaker 1: I think there are two really key reasons as to

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Speaker 1: why the dollar is so strong this year despite the overvaluation,

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Speaker 1: the first being the hawk ish FED and secondly, the

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Speaker 1: dollars really very much a safe haven currety. And if

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Speaker 1: you look at what has happened on a yearly basis

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Speaker 1: with recreat economic growth and sentiment and the rest of

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Speaker 1: the world, the dollar has really been, you know, a

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Speaker 1: safe haven asset. When does this have kind of salt

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Speaker 1: shelter and so as long as we continue to see

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Speaker 1: uncertainty in the market, which we believe we will, the

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Speaker 1: dollar can mean quite strong in the shorter term. Let's

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Speaker 1: talk about your outlook for China equities. We do have

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Speaker 1: Goldment Sacks reducing their MSCI China Index twelve months target,

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Speaker 1: but staying overweight on China ashes and that's the theme

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Speaker 1: that we're hearing from a lot of analysts as well

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Speaker 1: in terms of this reopening theme. But there's still a

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Speaker 1: lot of concern to about the property set to how

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Speaker 1: are you viewing the second half UM, so, I think

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Speaker 1: there are many reasons to be cautiously optimistic on Chinese equities,

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Speaker 1: especially in the second half of this year and mutual point.

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Speaker 1: The economic rebound is obvious UH in the numbers, and

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Speaker 1: we're starting to also see the government really stepping up

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Speaker 1: additional stimulus measures like the Infrastructure Plan UH, and the

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Speaker 1: regulatory environment has also shifted from one that's been very

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Speaker 1: draconian to a lot more accommodatives this year, and we

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Speaker 1: think that you know, against that that drop, it can

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Speaker 1: really facilitate evaluation relating UM in both the Asia as

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Speaker 1: law as the offshore Chinese equity market. You know, it's

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Speaker 1: interesting because the commercial banks in China held the prime

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Speaker 1: loan rates steady this week. That wasn't that surprising given

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Speaker 1: the decision by the PBOC to hold firm on the

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Speaker 1: key policy rates. But I'm wondering whether or not the

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Speaker 1: p BOC wants to first see before it begins to

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Speaker 1: address the issue of additional stimulus what the Fed ends

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Speaker 1: up doing. Is that fair? Yeah, well, I do think

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Speaker 1: that for them, UM, they're more focused domestically, UH, and

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Speaker 1: there's a lot of things that they're looking at the

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Speaker 1: moment that they have to contain. So the first thing,

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Speaker 1: you know, the covid UH situation continues doing me in

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Speaker 1: relatively THROUGHI it and UM, we're seeing like really encouraging

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Speaker 1: signs that they have gone from really um extreme measures

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Speaker 1: of locking down full cities too now you know, really

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Speaker 1: um learning to live with it and and you know,

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Speaker 1: looking down the portions of the cities that have been affected. H.

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Speaker 1: And also on top of that, we have the China

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Speaker 1: mortgage situation where UM, a lot of the home buyers

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Speaker 1: have started to not want to pay their mortgages for

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Speaker 1: incompleted buildings. UM. So you know the government also has

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Speaker 1: to do with that as well. So I think, you know,

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Speaker 1: it's a more of like using a combination of like

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Speaker 1: defter school monetary policy tools to manage what's more important

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Speaker 1: in the domestic economy versus really looking at what the

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Speaker 1: FED is doing. You do say, shift away from d

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Speaker 1: M where there are more earnings risks to Asia extra Pan.

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Speaker 1: I know you've just discussed the China story there, but

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Speaker 1: where else are you looking, particularly on the recovery theme. Yeah,

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Speaker 1: I think besides China, we do really like uh Asia

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Speaker 1: ex Japan outside of China as well, just because you know,

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Speaker 1: places like Asia and is continuing to reopen and we

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Speaker 1: should really start to see a handover from the really

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Speaker 1: export oriented recovery that we've seen over the last two

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Speaker 1: years to one that's more service oriented and more domestic

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Speaker 1: demand oriented. Um. So, you know, given that it's also

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Speaker 1: dated very significantly and the earnings expectations are so low

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Speaker 1: in Asia ex Japan, we think the probability of our

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Speaker 1: companies being able to beat those earnings and develover good

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Speaker 1: returns on the four looking basis, it is looking quite favorable.

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Speaker 1: We were talking earlier about Beijing finding d D Global

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Speaker 1: more than one point two billion. It's the end of

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Speaker 1: a year long probe. Do you believe the worst is

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Speaker 1: over and would you be a buyer of some of

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Speaker 1: these consumer facing Chinese tech names. Yeah, I think it's

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Speaker 1: it's a good it's a step in the right direction. Uh.

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Speaker 1: And it relates back to my point earlier about the

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Speaker 1: regulatory environment being shifting from a really draconian approach to

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Speaker 1: one that's a lot more accommodative. And in fact, you're

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Speaker 1: fine was really taken to be like the best case scenario, uh,

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Speaker 1: as a slap on the hand or fork for operating

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Speaker 1: in the way that they had. But in terms of

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Speaker 1: factors that we do like at the moment, because there

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Speaker 1: are still risks in the China economic growth story, we

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Speaker 1: continue to actually prefer subsectors that we know for sure

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Speaker 1: have like strong as you support from the government, so

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Speaker 1: thinks things like renewable energy, the carbonization theme as well

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Speaker 1: as you know, shift more high ends and conducted manufacturing.

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Speaker 1: So those are the sectors that we would prefer. All right, Clara,

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Speaker 1: thank you for your insights. Clara Chong, as Global market

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Speaker 1: strategist at JP Morgan on the line from Singapore for

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Speaker 1: us here on Daybreak Asia, and this is Bloomberg