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Speaker 1: Let's get to Thomas Ta. He is our guest for

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Speaker 1: the segment. Thomas is head of a pack I shares

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Speaker 1: investment strategy at black Rock who joins from our studios

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Speaker 1: in Hong Kong. It's always a pleasure, Thomas. Thanks for

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Speaker 1: coming in to spend some time with us. I think

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Speaker 1: we got to talk about this pivot on the part

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Speaker 1: of COVID policy in China. A lot of enthusiasm and

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Speaker 1: risk assets over the last couple of days. Is this

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Speaker 1: a game changer? Do you think? Yeah, good morning, Great

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Speaker 1: to be back. So, I mean in terms of the turnaround,

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Speaker 1: at least in terms of asset prises. I mean, I'm

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Speaker 1: not sure I've ever seen such a voltile rebound in

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Speaker 1: my whole life. I mean, offshore Chinese tech companies are

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Speaker 1: up nearly fifty percent in the last six weeks. Um.

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Speaker 1: I think there's a couple of things going on here.

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Speaker 1: I mean, obviously, the softening of the COVID stands is

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Speaker 1: a huge thing for investors. Um. I think primarily it's

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Speaker 1: kind of started with a lot of short covering that

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Speaker 1: was happening. You can kind of see that when you

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Speaker 1: look at offshore Chinese performance versus on shore where offshore

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Speaker 1: is performed significantly better. Those were kind of the names

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Speaker 1: that were more heavily shorted. So in terms of positioning,

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Speaker 1: investors sort racing two number one cover shorts number two

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Speaker 1: get closer back to neutral in terms of their portfolios

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Speaker 1: because we have seen investors been be underweight Chinese equities

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Speaker 1: over the last two years, and obviously with performance going

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Speaker 1: the way that it is since in the last six weeks,

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Speaker 1: investors kind of need to chase that in such a difficult,

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Speaker 1: difficult years. So I don't think a lot has changed fundamentally. Uh,

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Speaker 1: you know, clearly there's there's going to be a shifter

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Speaker 1: of reopening, but it's going to be it's going to

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Speaker 1: be slow. It's gonna be quite hard to predict. You

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Speaker 1: know what, You're talking about the most populated country in

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Speaker 1: the world, one of the biggest land masses. So you

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Speaker 1: know how that how that road actually starts to unfold,

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Speaker 1: No one's really no one really knows. But it's obviously

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Speaker 1: changed the way that investors are looking at China overall.

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Speaker 1: And I think, you know, for our investors, you know,

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Speaker 1: what's happening is not so much a change in fundamental

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Speaker 1: fundamental view on China and moving into Chinese equities directly,

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Speaker 1: but investors have actually been buying uh the economies which

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Speaker 1: our net beneficiaries of the reopening, So Taiwan, South Korea

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Speaker 1: have seen significant inflows over the last two months. I

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Speaker 1: think actually November for Taiwan Taiwanese equities was probably the

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Speaker 1: largest influence we've seen in the last fifteen years. So

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Speaker 1: they're trying to play that. They're trying to play the

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Speaker 1: reopening without moving directly back into China. At this point,

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Speaker 1: I think, well, we got the MSCI China Index better

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Speaker 1: by over the past month. How much more upside do

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Speaker 1: you think the risk to go? Well, I think, you know,

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Speaker 1: going into the end of the year, it certainly looks

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Speaker 1: to be like this will will continue because I mean

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Speaker 1: even when you when you've started to see a lot

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Speaker 1: of volatility in the US over the last couple of days,

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Speaker 1: investors have continued to buy Chinese equity. So you know, again,

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Speaker 1: I think we this this kind of goes into the

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Speaker 1: end of the year, then investors start to look at

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Speaker 1: how to allocate next year. Um. I think that the

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Speaker 1: message is clear that investors need to have some kind

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Speaker 1: of China exposure in their portfolio. But whether they do

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Speaker 1: that investing directly into China or into Chinese primary primary

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Speaker 1: trade partners. That that's that's what we're yet to see.

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Speaker 1: So um, you know it, It certainly looks like an

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Speaker 1: area where investors can put some risk to work, given

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Speaker 1: you know, our views on on the rest of the

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Speaker 1: world and particularly US US equities where we're slightly less optimistic. Okay,

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Speaker 1: maybe you see the possibility of a recession here. I

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Speaker 1: think Goldman right now seest thirty five percent chance of

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Speaker 1: a soft landing, So that gives us what sixt that

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Speaker 1: it's going to be a lot harder than that. If

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Speaker 1: the situation in China is going to be a slow

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Speaker 1: and steady recovery. How do you want to be exposed

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Speaker 1: to that? I understand the shortcovering argument that that speaks

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Speaker 1: to a lot of the price action that we have

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Speaker 1: seen recently, but longer term, I know you get involved

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Speaker 1: with investment strategy, but take a wide shot here, give

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Speaker 1: me a little the macro view. Do you want to

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Speaker 1: be exposed to the consumer in China going forward? Well,

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Speaker 1: that's I mean, that's that's the play that looks the

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Speaker 1: most obvious at the moment. You know, for investors. There's

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Speaker 1: a clear differentiation between offshore, which is more consumer discretiony tech.

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Speaker 1: You know, that's I think the reason why that's performed

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Speaker 1: so well over the last six weeks. If you take

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Speaker 1: the shortcovering out of it UM, you know, these are

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Speaker 1: these are the names which from evaluation perspective, are very

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Speaker 1: very interesting. You know, this this huge regulatory crackdown we've

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Speaker 1: seen over the last two years in the tech space,

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Speaker 1: that that looks like it's kind of peaked. You know,

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Speaker 1: We've been saying that for a few months now, but

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Speaker 1: that looks like it's peaked. So that those are also

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Speaker 1: the vehicles which are much easier for for offshore investors

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Speaker 1: to to access, whether that's through a d r S

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Speaker 1: or through through stock connect or whatever it is, or

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Speaker 1: just going directly into Hong Kong um. But on on shore,

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Speaker 1: you know, those are the names in terms of the

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Speaker 1: older economy longer term that looked quite interesting because that's

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Speaker 1: kind of the way that Premier she has has positioned

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Speaker 1: in terms of common prosperity, et cetera. And those are

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Speaker 1: kind of the names which are more net beneficiaries of

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Speaker 1: fiscal and monetary easing, which still looks to be the

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Speaker 1: base case for for the PBOC. So I think over

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Speaker 1: the longer term that those those on shore names look

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Speaker 1: looked quite interesting. Let's take a look on the other

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Speaker 1: side of the Pacific. We do get US CPI numbers

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Speaker 1: next week. What science can you see that inflation might

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Speaker 1: be easy? And do you think there's a risk things

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Speaker 1: could actually end up easing faster than expected? Um? You know,

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Speaker 1: for us, in terms of the overall framework, we are

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Speaker 1: sort of looking the other way. So yes, head the

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Speaker 1: headline number looks like it's it has peaked. Um, you

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Speaker 1: know that that's I don't think that's any any particularly

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Speaker 1: any nothing particularly significant. We we always kind of expected

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Speaker 1: at The difference for us in the framework is that

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Speaker 1: we don't see the FED actually cutting rates next year.

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Speaker 1: So you know, whether you want to see the terminal

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Speaker 1: rate or whether you think the terminal rate's gonna be

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Speaker 1: five or five point to five or four five, whatever

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Speaker 1: it is, our view is that the Fed will stick

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Speaker 1: there for three So um, you know, looking to this

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Speaker 1: two percent inflation target, we don't think it's realistic. At

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Speaker 1: some point the FED will have to realize that two

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Speaker 1: percent is not going to happen. At that point, um,

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Speaker 1: you know, you might start to price in a pivot,

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Speaker 1: but for us, it's it's way too way too early,

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Speaker 1: so we're not actually seeing a pivot next year. We

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Speaker 1: think that the FED will will probably stick, which is

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Speaker 1: why we're we're less optimistic or underway on US equities.

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Speaker 1: So I'm going to imagine then you're going to think

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Speaker 1: that the dollar will remain stable. I mean, maybe a

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Speaker 1: little bit of fluctuation, but we're not going to see

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Speaker 1: a big move one way or the other. But let

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Speaker 1: me pivot to to crypto because i'd like to get

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Speaker 1: your take about the meltdown and f t X and

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Speaker 1: how that's impacted psychology. Can you give me that in

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Speaker 1: about sixty seconds? Your view on the connection between what

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Speaker 1: we saw in crypto and investors sentiment as we've moved

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Speaker 1: into Sure, I should probably have it by saying we

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Speaker 1: don't actually have any crypto type e t f s

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Speaker 1: and we don't actually cover it. But in terms of

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Speaker 1: the sentiment, I think it it's impacted the retail investor.

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Speaker 1: It hasn't really impacted the institutional investors, which is who

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Speaker 1: who we speak to. So you know, a month ago

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Speaker 1: when this started happening, there were some questions abound contagion.

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Speaker 1: You know, equities are up fift since then, so I

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Speaker 1: don't think it's a it's a big deal for institutional investors,

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Speaker 1: but obviously on the retail space it's a little bit

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Speaker 1: more significant. Um, just quickly, we've got a few seconds left.

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Speaker 1: What's your biggest risk getting into the end of the year.

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Speaker 1: The biggest risk going into the end of the year,

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Speaker 1: I think is that you know, we have one whether

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Speaker 1: you want to call it bad or good data print

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Speaker 1: like we saw with the consumer number a couple of

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Speaker 1: days ago. Uh, and investors start to realize that the

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Speaker 1: risk rally is over and they start to position into

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Speaker 1: next year by by selling off the positive returns we've

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Speaker 1: seen over the last month. Alright, Thomas Tour, thanks so

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Speaker 1: much for joining us on Bloomberg Daybreak Asia. Thomas has

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Speaker 1: head over a pack I shares investment strategy at black

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Speaker 1: Rock