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Speaker 1: Sean Taylor is our guest, a pack c I O

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Speaker 1: and head of Emerging Market Equities at DWS. Sean, great

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Speaker 1: to have you on the program, Great to have you

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Speaker 1: in our studios here. I referred earlier to the schizophrenic

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Speaker 1: nature of the FED statement in the Powell commentary, that's

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Speaker 1: just me trying to stir things up a little bit.

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Speaker 1: I thought that Powell was was very solid in the

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Speaker 1: news conference, but did have a different message from the

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Speaker 1: FED statement In the end, I suppose the main messages

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Speaker 1: we've got to get ready for a much higher terminal rate. Yeah,

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Speaker 1: that's right, Brian. I mean, well, a much a much

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Speaker 1: higher terminal rate UM and probably for longer. And I

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Speaker 1: think the difference between what the FED is saying um

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Speaker 1: both both you know, with the press conference and the statement,

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Speaker 1: and what the market is factoring in is when the

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Speaker 1: pivot will be. And you know, the market is still

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Speaker 1: looking for rates to come down towards the end of

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Speaker 1: two thousand and twenty three. But that's that's so as

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Speaker 1: that's clearly not on the table. It's going to be

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Speaker 1: too two thousand and twenty four, and investors need to

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Speaker 1: prepare for that, and investors need to prepare as well.

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Speaker 1: For what we're seeing from corporate starting to tap the

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Speaker 1: brakes on hiring or indeed firing as well. What does

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Speaker 1: that mean in terms of earnings and in the overall market.

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Speaker 1: Do we see a load coming through for the SNP

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Speaker 1: five hundred um. Look, I think I think the hiring

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Speaker 1: is an interesting one because you know, what's been so

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Speaker 1: stubborn in the US. I mean, if you think about

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Speaker 1: the data over over the last few months, you know,

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Speaker 1: you've you've had housing down a bit, you've had p

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Speaker 1: mis down, you've had rates go up, the cost of

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Speaker 1: capital go up, but actually the labor market has not

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Speaker 1: really been affected. And so there is obviously something structurally

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Speaker 1: happening in the labor market. And maybe it's that Corporate

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Speaker 1: America is doing, you know, doing social services. It's not

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Speaker 1: willing to to lay off people, or it thinks the

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Speaker 1: cycle is going to be quite short and it wants

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Speaker 1: that talent um, but it's going to certainly hurt the

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Speaker 1: hurt on the consumer. Look, I think the the earnings

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Speaker 1: is about is about the consumer being being a lot

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Speaker 1: weaker as well. Obviously, you know, earnings were expected to

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Speaker 1: come down there the last sort of things to drop. Um,

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Speaker 1: and and it's still you know, obviously the big tech companies.

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Speaker 1: We've had some fairly you know, Paul guidance over the

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Speaker 1: last few weeks. Well, corporates balance sheets are pretty good,

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Speaker 1: and it may be that they're just taking a longer view.

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Speaker 1: It may also be there, as I mentioned earlier in

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Speaker 1: regards to Starbucks, that inflation can to a certain degree

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Speaker 1: be working in your favor. You don't have to get

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Speaker 1: actually the camps up too much if you also have

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Speaker 1: sort of seven eight percent inflation working in your favor. Um.

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Speaker 1: Do you like the way companies are actually managing through this?

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Speaker 1: I think I think the one thing that differentiates the

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Speaker 1: US Bryan from from any other market is the strength

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Speaker 1: of the consumer. Firstly, I mean, I think we have

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Speaker 1: to note that pre COVID. You know, that's why post

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Speaker 1: COVID versus pre COVID, the consumer has a lot more

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Speaker 1: in the balance sheet. Now maybe some of that's run

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Speaker 1: off a little bit, but that's been helped by the government. Um,

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Speaker 1: so in a much better position. Um. Secondly, the about

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Speaker 1: the corporate balance sheet is a lot stronger. So yes,

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Speaker 1: I think, you know, I think you have to differentiate

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Speaker 1: between those companies that do not need to raise finance

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Speaker 1: and those companies that need a lot of finance. I mean,

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Speaker 1: you've seen certain areas like biotech and you know sort

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Speaker 1: of some of the new energy areas that need to

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Speaker 1: raise capital that they know they've come under quite a

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Speaker 1: lot of pressure. But companies that have strong balance sheets

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Speaker 1: and good business models should survive this and probably actually

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Speaker 1: get more market share. Sean talking, they're about the volatility

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Speaker 1: we've been seeing in Hong Kong and China, and certainly

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Speaker 1: that rally cut short after authorities said, look, we are

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Speaker 1: resolutely adhering to COVID zero. We know when we finally

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Speaker 1: get an announcement there will be a turnaround. But in

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Speaker 1: the interim, how patient do we need to be to

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Speaker 1: see some kind of strong rally coming through in those markets? Yeah,

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Speaker 1: I look very very good question. Um. Our last note,

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Speaker 1: we said patients is needed for China, and I think

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Speaker 1: after the CPC I should have said more patient is needed. Um. Look,

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Speaker 1: we I think what the market needs is a roadmap.

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Speaker 1: I think it's going to take the next few months

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Speaker 1: for the main political appointments to be made. The PBOC

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Speaker 1: Lee Hers replacement UM and d R c UM and

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Speaker 1: you know, then we just have to really look at

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Speaker 1: what the signs are because there's a lot of rumors

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Speaker 1: going around that you know, China's going to open up

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Speaker 1: today and then the market rallies and then it's denied

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Speaker 1: and the market falls again. Um. But we have to see,

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Speaker 1: you know, firstly, let's look at the retoric from the

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Speaker 1: government about covid um and then secondly let's look at

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Speaker 1: the vaccination rate. And over the last few months, sadly,

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Speaker 1: the vaccination rates in China have actually gone down relative

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Speaker 1: to the rates they were you know. Um, so that's

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Speaker 1: very very important. You know, the areas you can invest

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Speaker 1: in China at some stage they will open up, um.

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Speaker 1: And and that the government is still putting more money

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Speaker 1: or more policy support behind the renewable sector. So those

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Speaker 1: are the two areas that you know, we think stand out.

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Speaker 1: You know, if you want to invest in China for

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Speaker 1: a for a proper be to play in China, I

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Speaker 1: think you have to literally be wait and be patient.

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Speaker 1: But one thing we know, particularly from the couple of

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Speaker 1: day rallies this week, everyone is underway, everyone is short

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Speaker 1: and you know when it happens, it will be a

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Speaker 1: big rally. So I wouldn't rule out a very large

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Speaker 1: move in the next six months, but timing it is

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Speaker 1: very difficult. So we have the Rugby sevens this weekend.

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Speaker 1: We've had this big financial conference this week. Hong Kong

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Speaker 1: wants to say it's back and people are are cooperating.

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Speaker 1: But let me ask you, if it's true through the

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Speaker 1: prism of this, which do you think happens first, the

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Speaker 1: FED pauses on interest rate rises or China altar as

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Speaker 1: it's COVID zero. I think the latter, Brian, I think

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Speaker 1: we will get a roadmap before the FED pauses, And

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Speaker 1: both of those actually would benefit Hong Kong greatly, wouldn't they. Yeah,

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Speaker 1: I mean we could get you know, we could get

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Speaker 1: a scenario next year where we've got the road to

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Speaker 1: to COVID zero, opening up a bit more policy support

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Speaker 1: from China UM and the FED pivoting or at least

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Speaker 1: stopping I don't know. As I said, we don't think

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Speaker 1: there'll be a FED pivot until twenty four, but certainly

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Speaker 1: stopping in and slowing down the pace and the market

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Speaker 1: anticipating that UM and that could be incredibly good good

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Speaker 1: news for for China. But we've tried to make those

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Speaker 1: you know, in Asia, most people we've all tried to

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Speaker 1: make those um, you know, the positions, you know quite

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Speaker 1: quite a lot. And you know, it should have been

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Speaker 1: an amazing year for China given the relativity of interest rates,

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Speaker 1: but obviously with the COVID zero policy, it's not. So

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Speaker 1: it's all about the COVID zero policy because consumption is

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Speaker 1: really weak, confidence is really weak. And look that that

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Speaker 1: that I'm really pleased about the sevens and Hong Kong,

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Speaker 1: you know, hopefully getting back to normal. But China and

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Speaker 1: the markets and growth is all about COVID zero policy.

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Speaker 1: In my opinion, I won't ask if you and Brian

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Speaker 1: are going to be in the South stand, but I

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Speaker 1: will ask where else you see some opportunity coming through

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Speaker 1: in the markets in Asia? Is it? Is it the

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Speaker 1: likes of SCN Is it the likes of India? Yeah, Look,

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Speaker 1: we've been quite structurally bullish on India and parts of Asia,

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Speaker 1: mainly Indonesia. We're now widening that out into Malaysia and Thailand,

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Speaker 1: but they're quite small markets Dulia, as you know. Um.

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Speaker 1: One thing, one area where we are more interested in

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Speaker 1: is Korea and particularly the semi area of Korea in

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Speaker 1: in um October, September and October, the markets in emerging

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Speaker 1: markets really fell, what we thought, much more than than

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Speaker 1: than deserved. And even though the tech cycle you know,

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Speaker 1: probably doesn't bottom until sort of first or second court

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Speaker 1: and next year, we do think that a lot of

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Speaker 1: stocks in Korea are are miss priced, are cheap. Unfortunately,

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Speaker 1: we've had you know, obviously more you know, laws come

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Speaker 1: out again with with semi conductors. With China, that's not

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Speaker 1: good for the entire sector um, just in terms of

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Speaker 1: centermunts all fundamentally. Actually it helps career, so you know,

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Speaker 1: certainly career over Taiwan at the moment, but when people

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Speaker 1: get more excited in about China at some stage over

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Speaker 1: the next six months, we would see those defensive markets

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Speaker 1: like Indonesia and India pulling back a bit or certainly

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Speaker 1: consolidating relative to China. Alright, Sean, it was a pleasure

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Speaker 1: have a great weekend. Sean Taylor, APEX c io and

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Speaker 1: head of Emerging Market Equities at DWS in our Hong

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Speaker 1: Kong studio for US