WEBVTT - Mark Konyn on the Markets (Radio)

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<v Speaker 1>At nine minutes past the R Mark Connan is with

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<v Speaker 1>US chief investment officer at ai A Group, Mark, good

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<v Speaker 1>to have you with us. Lauretta Mestres said no progress

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<v Speaker 1>on inflation, so that was probably disappointing to the balls,

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<v Speaker 1>and both she and Janet Yellen said no evidence of

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<v Speaker 1>disorderly market functioning. It probably means the bottom is still

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<v Speaker 1>always are far yeah, Brian, and thanks for the invitation

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<v Speaker 1>this morning, And it certainly does mean that the bottom

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<v Speaker 1>is a little bit of a ways off there. Trying

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<v Speaker 1>to force the balls into hibernation, I think, and we

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<v Speaker 1>haven't quite got there yet. We saw in July when

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<v Speaker 1>there was perhaps a misinterpretation of what j. Powe was

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<v Speaker 1>intending in his comments and the market rallied very strongly.

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<v Speaker 1>That's the sort of ralluy that can cause the imbalances

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<v Speaker 1>that I guess the FED is trying to avoid. We're

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<v Speaker 1>sort of moving away from when we might see a

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<v Speaker 1>FED pivot and more towards a FED pause. What is

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<v Speaker 1>something that needs to break for that to happen. Well,

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<v Speaker 1>I think markets are orderly and we need to see

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<v Speaker 1>signs that the economy is slowing um. There's a lot

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<v Speaker 1>of intense focus on the jobs data, and of course

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<v Speaker 1>jobs are a lagging indicator of economic activity, and as

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<v Speaker 1>we know historically, when jobs do turn they are just

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<v Speaker 1>quite quickly. In the United States, it's a very flexible

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<v Speaker 1>employment structure. So as the higher rates continue to click

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<v Speaker 1>on and has an impact on consumption and the growth

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<v Speaker 1>in the economy, then I think we'll start to see

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<v Speaker 1>expectations start to bottom out, and generally speaking before you

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<v Speaker 1>hit the bottom in the economy, up to six months

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<v Speaker 1>before equity markets start to anticipate that and move forward.

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<v Speaker 1>But we haven't really seen the adjustment in earnings expectations.

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<v Speaker 1>Markets are generally not very good at turning points, and

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<v Speaker 1>we haven't seen the d rating that perhaps is justified

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<v Speaker 1>given where we are in the cycle, and US officials

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<v Speaker 1>continue to say that they're doing what's right for the

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<v Speaker 1>US and by product is the strengthen the dollar, and

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<v Speaker 1>it has been basically destroying everything in its path. Do

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<v Speaker 1>you see any sort of concerted involvement of the Treasury

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<v Speaker 1>and central banks at some point? The dollar wrecking ball,

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<v Speaker 1>our currency, your problem, and nothing much has changed through history,

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<v Speaker 1>But we have seen times historically where there has been

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<v Speaker 1>a coming together of of officials globally to arrest the

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<v Speaker 1>path of a particular currency. Whether or not we're at

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<v Speaker 1>one of those points remains to be seen because policy

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<v Speaker 1>has been lagging in large parts of the world, including

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<v Speaker 1>including here in Asia. Mark Conan is chief investment officer

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<v Speaker 1>at AI, a group joining us in Hong Kong. And

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<v Speaker 1>we're talking about the strength of the dollar, you say,

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<v Speaker 1>our dollar your problem. But when it comes to what

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<v Speaker 1>we are seeing across Asia, as Doug was mentioning that

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<v Speaker 1>weakness in the yen, whether or not we're going to

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<v Speaker 1>see intervention there, and the weakness in the one ahead

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<v Speaker 1>of the Bank of Career decision as well, how much

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<v Speaker 1>does this just complicate things for Asia and is it

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<v Speaker 1>going to be similar to what we saw in seven. No,

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<v Speaker 1>I don't think we've got a nine seven type situation.

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<v Speaker 1>We don't have the offshore liabilities that drove that crisis US.

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<v Speaker 1>But what we do have is lagging policy in this

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<v Speaker 1>part of the world. Typically, as as economies have emerged

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<v Speaker 1>later from COVID, some yet to fully emerge, and therefore

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<v Speaker 1>authorities central banks have been keen to see a lagging

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<v Speaker 1>in terms of policy monetary policy relative to the US,

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<v Speaker 1>and that has obviously put more strength in the sales

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<v Speaker 1>of the dollar, and it does it does cause problems,

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<v Speaker 1>but I think now we're going to be in a

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<v Speaker 1>period of catch up. I think police policy is in

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<v Speaker 1>the process of being tightening. We're seeing the bank of

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<v Speaker 1>career meet I think today, and we're expecting a half

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<v Speaker 1>point rise there. For those exporting countries that rely on

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<v Speaker 1>exports to the to the developed world in high valuated

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<v Speaker 1>goods like career, like Taiwan, I think they are going

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<v Speaker 1>to struggle economically. And I think if you look at

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<v Speaker 1>a if you look at an economy, you look at

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<v Speaker 1>an equity strategy across this region, those markets will tend

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<v Speaker 1>to be underweighted as a result. So we've seen utilities

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<v Speaker 1>in the US, for instance, fall on much in the

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<v Speaker 1>past month, and when they when they start selling all

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<v Speaker 1>the defensive sect as you know, you're you're probably getting

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<v Speaker 1>close to a capitulation moment. In your view, what does

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<v Speaker 1>capitulation look like, given that we've had a lot of

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<v Speaker 1>this and we've seen it coming, does it get really

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<v Speaker 1>bad or does it just grind on? Well, it's been

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<v Speaker 1>a bit of a grind with some false hope being

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<v Speaker 1>expressed in baar market rallies. The July rally which I

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<v Speaker 1>mentioned earlier was a very significant one which has now

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<v Speaker 1>been drained out, forcing forcing the balls into hibernation. Unfortunately, Brian,

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<v Speaker 1>the last leg is generally the most painful, as the

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<v Speaker 1>realization of slowing earnings comes through with the prospect of

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<v Speaker 1>a d rating on equity markets. That's when the last

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<v Speaker 1>the last strains, if you like, the last remnants of

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<v Speaker 1>ball of the ball market are squeezed out, and that's

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<v Speaker 1>where you see the biggest decline. That decline then as

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<v Speaker 1>preludes or or it is a prelude for a recovery

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<v Speaker 1>later on once as we start to see anticipation at

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<v Speaker 1>the bottom of the economy being reached, and generally equity

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<v Speaker 1>markets recover an anticipation of that. So, Marke, we're looking

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<v Speaker 1>ahead to the China Party Congress and as you rightly

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<v Speaker 1>point out, there could be a rally after President she

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<v Speaker 1>speech if we see some more policy support. But how

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<v Speaker 1>sustainable is that? What is the outlook in your view

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<v Speaker 1>for China equities. Yeah, China equities are a very unloved

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<v Speaker 1>asset class, both domestically and internationally, and as we're seeing

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<v Speaker 1>the sort of anti China sentiment is driving a lot

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<v Speaker 1>of that outside in North America and in Europe. UM.

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<v Speaker 1>It's been a tough time obviously with the with the

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<v Speaker 1>property market debacle and the debt problem there in in China.

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<v Speaker 1>At the same time, you've got the external sector pretty

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<v Speaker 1>weak UM, and you've got limited policy response because of

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<v Speaker 1>the imbalances that are being being addressed. I think most

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<v Speaker 1>people are focused on the conquest in terms of the

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<v Speaker 1>of the realignment of the leadership, perhaps a bit too much.

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<v Speaker 1>What we're looking for there is continuity, which is particularly

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<v Speaker 1>relevant at this time when there are some significant headwinds

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<v Speaker 1>that need to be encountered and policy challenges. The reality

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<v Speaker 1>years we're not going to see the fullness of what

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<v Speaker 1>the policy is being set at until we get well

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<v Speaker 1>past the Congress out until next March, yes for the MPC,

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<v Speaker 1>so it's going to be a slow drip. However, markets

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<v Speaker 1>may do what they often do is a bit of

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<v Speaker 1>short covering. If we see some signs of encouragement from

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<v Speaker 1>She's opening, will Jping re embrace the capitalists I'm not thinking.

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<v Speaker 1>I'm not sure overtly that is that is top of

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<v Speaker 1>the agenda. I think what what top of the agenda

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<v Speaker 1>is confidence in the leadership, continuity in the leadership, a

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<v Speaker 1>commitment to common prosperity of you know, a real focus

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<v Speaker 1>on some of the key tenants of the policy to date,

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<v Speaker 1>getting better balance within the domestic economy. That's sort of

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<v Speaker 1>a nu right. So in short, yes, Brian no Mark,

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<v Speaker 1>thank you and thanks for coming into our Hong Kong

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<v Speaker 1>studio market and its chief investment officer at a I

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<v Speaker 1>a Group with us in Hong Kong here on Bloomberg

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<v Speaker 1>Daybreak Asia