Speaker 1: At nine minutes past the R Mark Connan is with
Speaker 1: US chief investment officer at ai A Group, Mark, good
Speaker 1: to have you with us. Lauretta Mestres said no progress
Speaker 1: on inflation, so that was probably disappointing to the balls,
Speaker 1: and both she and Janet Yellen said no evidence of
Speaker 1: disorderly market functioning. It probably means the bottom is still
Speaker 1: always are far yeah, Brian, and thanks for the invitation
Speaker 1: this morning, And it certainly does mean that the bottom
Speaker 1: is a little bit of a ways off there. Trying
Speaker 1: to force the balls into hibernation, I think, and we
Speaker 1: haven't quite got there yet. We saw in July when
Speaker 1: there was perhaps a misinterpretation of what j. Powe was
Speaker 1: intending in his comments and the market rallied very strongly.
Speaker 1: That's the sort of ralluy that can cause the imbalances
Speaker 1: that I guess the FED is trying to avoid. We're
Speaker 1: sort of moving away from when we might see a
Speaker 1: FED pivot and more towards a FED pause. What is
Speaker 1: something that needs to break for that to happen. Well,
Speaker 1: I think markets are orderly and we need to see
Speaker 1: signs that the economy is slowing um. There's a lot
Speaker 1: of intense focus on the jobs data, and of course
Speaker 1: jobs are a lagging indicator of economic activity, and as
Speaker 1: we know historically, when jobs do turn they are just
Speaker 1: quite quickly. In the United States, it's a very flexible
Speaker 1: employment structure. So as the higher rates continue to click
Speaker 1: on and has an impact on consumption and the growth
Speaker 1: in the economy, then I think we'll start to see
Speaker 1: expectations start to bottom out, and generally speaking before you
Speaker 1: hit the bottom in the economy, up to six months
Speaker 1: before equity markets start to anticipate that and move forward.
Speaker 1: But we haven't really seen the adjustment in earnings expectations.
Speaker 1: Markets are generally not very good at turning points, and
Speaker 1: we haven't seen the d rating that perhaps is justified
Speaker 1: given where we are in the cycle, and US officials
Speaker 1: continue to say that they're doing what's right for the
Speaker 1: US and by product is the strengthen the dollar, and
Speaker 1: it has been basically destroying everything in its path. Do
Speaker 1: you see any sort of concerted involvement of the Treasury
Speaker 1: and central banks at some point? The dollar wrecking ball,
Speaker 1: our currency, your problem, and nothing much has changed through history,
Speaker 1: But we have seen times historically where there has been
Speaker 1: a coming together of of officials globally to arrest the
Speaker 1: path of a particular currency. Whether or not we're at
Speaker 1: one of those points remains to be seen because policy
Speaker 1: has been lagging in large parts of the world, including
Speaker 1: including here in Asia. Mark Conan is chief investment officer
Speaker 1: at AI, a group joining us in Hong Kong. And
Speaker 1: we're talking about the strength of the dollar, you say,
Speaker 1: our dollar your problem. But when it comes to what
Speaker 1: we are seeing across Asia, as Doug was mentioning that
Speaker 1: weakness in the yen, whether or not we're going to
Speaker 1: see intervention there, and the weakness in the one ahead
Speaker 1: of the Bank of Career decision as well, how much
Speaker 1: does this just complicate things for Asia and is it
Speaker 1: going to be similar to what we saw in seven. No,
Speaker 1: I don't think we've got a nine seven type situation.
Speaker 1: We don't have the offshore liabilities that drove that crisis US.
Speaker 1: But what we do have is lagging policy in this
Speaker 1: part of the world. Typically, as as economies have emerged
Speaker 1: later from COVID, some yet to fully emerge, and therefore
Speaker 1: authorities central banks have been keen to see a lagging
Speaker 1: in terms of policy monetary policy relative to the US,
Speaker 1: and that has obviously put more strength in the sales
Speaker 1: of the dollar, and it does it does cause problems,
Speaker 1: but I think now we're going to be in a
Speaker 1: period of catch up. I think police policy is in
Speaker 1: the process of being tightening. We're seeing the bank of
Speaker 1: career meet I think today, and we're expecting a half
Speaker 1: point rise there. For those exporting countries that rely on
Speaker 1: exports to the to the developed world in high valuated
Speaker 1: goods like career, like Taiwan, I think they are going
Speaker 1: to struggle economically. And I think if you look at
Speaker 1: a if you look at an economy, you look at
Speaker 1: an equity strategy across this region, those markets will tend
Speaker 1: to be underweighted as a result. So we've seen utilities
Speaker 1: in the US, for instance, fall on much in the
Speaker 1: past month, and when they when they start selling all
Speaker 1: the defensive sect as you know, you're you're probably getting
Speaker 1: close to a capitulation moment. In your view, what does
Speaker 1: capitulation look like, given that we've had a lot of
Speaker 1: this and we've seen it coming, does it get really
Speaker 1: bad or does it just grind on? Well, it's been
Speaker 1: a bit of a grind with some false hope being
Speaker 1: expressed in baar market rallies. The July rally which I
Speaker 1: mentioned earlier was a very significant one which has now
Speaker 1: been drained out, forcing forcing the balls into hibernation. Unfortunately, Brian,
Speaker 1: the last leg is generally the most painful, as the
Speaker 1: realization of slowing earnings comes through with the prospect of
Speaker 1: a d rating on equity markets. That's when the last
Speaker 1: the last strains, if you like, the last remnants of
Speaker 1: ball of the ball market are squeezed out, and that's
Speaker 1: where you see the biggest decline. That decline then as
Speaker 1: preludes or or it is a prelude for a recovery
Speaker 1: later on once as we start to see anticipation at
Speaker 1: the bottom of the economy being reached, and generally equity
Speaker 1: markets recover an anticipation of that. So, Marke, we're looking
Speaker 1: ahead to the China Party Congress and as you rightly
Speaker 1: point out, there could be a rally after President she
Speaker 1: speech if we see some more policy support. But how
Speaker 1: sustainable is that? What is the outlook in your view
Speaker 1: for China equities. Yeah, China equities are a very unloved
Speaker 1: asset class, both domestically and internationally, and as we're seeing
Speaker 1: the sort of anti China sentiment is driving a lot
Speaker 1: of that outside in North America and in Europe. UM.
Speaker 1: It's been a tough time obviously with the with the
Speaker 1: property market debacle and the debt problem there in in China.
Speaker 1: At the same time, you've got the external sector pretty
Speaker 1: weak UM, and you've got limited policy response because of
Speaker 1: the imbalances that are being being addressed. I think most
Speaker 1: people are focused on the conquest in terms of the
Speaker 1: of the realignment of the leadership, perhaps a bit too much.
Speaker 1: What we're looking for there is continuity, which is particularly
Speaker 1: relevant at this time when there are some significant headwinds
Speaker 1: that need to be encountered and policy challenges. The reality
Speaker 1: years we're not going to see the fullness of what
Speaker 1: the policy is being set at until we get well
Speaker 1: past the Congress out until next March, yes for the MPC,
Speaker 1: so it's going to be a slow drip. However, markets
Speaker 1: may do what they often do is a bit of
Speaker 1: short covering. If we see some signs of encouragement from
Speaker 1: She's opening, will Jping re embrace the capitalists I'm not thinking.
Speaker 1: I'm not sure overtly that is that is top of
Speaker 1: the agenda. I think what what top of the agenda
Speaker 1: is confidence in the leadership, continuity in the leadership, a
Speaker 1: commitment to common prosperity of you know, a real focus
Speaker 1: on some of the key tenants of the policy to date,
Speaker 1: getting better balance within the domestic economy. That's sort of
Speaker 1: a nu right. So in short, yes, Brian no Mark,
Speaker 1: thank you and thanks for coming into our Hong Kong
Speaker 1: studio market and its chief investment officer at a I
Speaker 1: a Group with us in Hong Kong here on Bloomberg
Speaker 1: Daybreak Asia