1 00:00:00,080 --> 00:00:02,200 Speaker 1: Let's take a closer look at today's price section with 2 00:00:02,240 --> 00:00:05,760 Speaker 1: our guest, Margig Patel, senior portfolio manager at all Spring 3 00:00:05,800 --> 00:00:08,880 Speaker 1: Global Investments. Markie, thanks for being with us. So we 4 00:00:08,960 --> 00:00:11,080 Speaker 1: had a number of FETE officials we just laid it out. 5 00:00:11,360 --> 00:00:13,720 Speaker 1: They are basically saying, Hey, we've got a long way 6 00:00:13,760 --> 00:00:17,000 Speaker 1: to go until inflation is under control. With the signs 7 00:00:17,000 --> 00:00:19,360 Speaker 1: that we've already seen of slower growth, Are you worried 8 00:00:19,400 --> 00:00:23,160 Speaker 1: about an environment of stag inflation. Uh? No, I'm more 9 00:00:23,200 --> 00:00:26,840 Speaker 1: worried about the Fed over tightening and causing a real 10 00:00:26,880 --> 00:00:29,200 Speaker 1: recession rather than little dips that we've had for the 11 00:00:29,280 --> 00:00:33,320 Speaker 1: last two quarters. So do you think the markets priced 12 00:00:33,320 --> 00:00:37,000 Speaker 1: in that risk? Um? Well, I think the market is 13 00:00:37,040 --> 00:00:40,800 Speaker 1: really torn between saying the Fed is almost done. That's 14 00:00:40,800 --> 00:00:43,199 Speaker 1: why we had great spike up in mid June, the 15 00:00:43,240 --> 00:00:48,199 Speaker 1: market plunge, we've had the market recover over treasury race 16 00:00:48,240 --> 00:00:51,519 Speaker 1: are down seventy basis points on the hope that the 17 00:00:51,560 --> 00:00:54,400 Speaker 1: Fed would, after one or two more rises, would be 18 00:00:54,440 --> 00:00:58,000 Speaker 1: ready to start ease again. Um. But it looks as 19 00:00:58,000 --> 00:01:00,840 Speaker 1: if they have something more longer termined mind, and it 20 00:01:00,880 --> 00:01:03,840 Speaker 1: seems to me that they have great confidence in their 21 00:01:03,880 --> 00:01:08,360 Speaker 1: ability to control inflation by raising rates, and I think 22 00:01:08,360 --> 00:01:12,160 Speaker 1: it's because they are comforted by the very low unemployment rate, 23 00:01:12,480 --> 00:01:14,640 Speaker 1: by the fact you haven't seen any big jumps in 24 00:01:14,720 --> 00:01:18,320 Speaker 1: unemployment that you solve labor shortages so that it looks like, 25 00:01:18,360 --> 00:01:21,280 Speaker 1: so far, so good. The raising rates. The economy is 26 00:01:21,319 --> 00:01:24,520 Speaker 1: slowing down, but we have no problems with labor. We 27 00:01:24,520 --> 00:01:26,840 Speaker 1: don't have millions and millions of people out of work 28 00:01:27,040 --> 00:01:30,080 Speaker 1: at this point. We have the jobs report on Friday. 29 00:01:30,240 --> 00:01:32,840 Speaker 1: Jim Buller today was pretty much in the camp of 30 00:01:33,640 --> 00:01:36,280 Speaker 1: a soft landing. Whether or not that can be engineered, 31 00:01:36,280 --> 00:01:38,360 Speaker 1: we'll have to wait and see. But you were talking 32 00:01:38,360 --> 00:01:40,800 Speaker 1: about inflation a moment ago, and I'm wondering whether in 33 00:01:40,840 --> 00:01:45,399 Speaker 1: your scenario it's going to be shallow and kind of quick, 34 00:01:45,720 --> 00:01:49,960 Speaker 1: or whether deep and more prolonged. I think inflation already 35 00:01:50,000 --> 00:01:52,440 Speaker 1: has in taqued In is coming down. You see that 36 00:01:52,480 --> 00:01:55,240 Speaker 1: in lots of incremental data that we're seeing, and I 37 00:01:55,240 --> 00:01:59,000 Speaker 1: think that will continue. And what we're seeing though, especially 38 00:01:59,080 --> 00:02:02,360 Speaker 1: with global growth slowing down pretty much around the world, 39 00:02:02,960 --> 00:02:04,960 Speaker 1: whether you look at Europe, you look at now this 40 00:02:05,280 --> 00:02:07,720 Speaker 1: new unrest that we're seeing in China that says that's 41 00:02:07,800 --> 00:02:11,480 Speaker 1: not the precondition for high inflation. That's more for lower 42 00:02:11,520 --> 00:02:14,880 Speaker 1: growth if not globe war session, and I think inflation 43 00:02:14,919 --> 00:02:18,760 Speaker 1: will come down rather quickly over the next year. My 44 00:02:18,840 --> 00:02:23,160 Speaker 1: concern is the FED is focusing on those those backward 45 00:02:23,160 --> 00:02:26,320 Speaker 1: looking inflation numbers and want to continue to tighten. And again, 46 00:02:26,360 --> 00:02:28,280 Speaker 1: I think it's because they feel they're on the right 47 00:02:28,280 --> 00:02:31,840 Speaker 1: course because we haven't had any big jump in unemployment 48 00:02:31,919 --> 00:02:34,799 Speaker 1: and unemployment claims. I think when you start to see that, 49 00:02:35,120 --> 00:02:37,840 Speaker 1: then you'll see the FED changer two quite a bit 50 00:02:37,840 --> 00:02:40,520 Speaker 1: of breathing room between now and the next FIT meeting 51 00:02:40,560 --> 00:02:43,760 Speaker 1: in September. Where does the balance of probabilities lie in 52 00:02:43,840 --> 00:02:46,720 Speaker 1: terms of the magnitude of rate hike and where do 53 00:02:46,800 --> 00:02:50,160 Speaker 1: you see the benchmark rate sibling? Well, I think that they, 54 00:02:50,400 --> 00:02:53,560 Speaker 1: depending on how they judge in the market conditions fifty 55 00:02:53,600 --> 00:02:56,800 Speaker 1: basis or maybe seventy five basis, maybe they feel they'd 56 00:02:56,880 --> 00:02:59,200 Speaker 1: like to be more aggressive and take care of that 57 00:02:59,560 --> 00:03:03,720 Speaker 1: and then earlier approaching the election, and so they typically 58 00:03:03,760 --> 00:03:07,160 Speaker 1: have liked to be on an even keel, not act 59 00:03:07,520 --> 00:03:09,200 Speaker 1: right in front of the election. So I think they 60 00:03:09,200 --> 00:03:12,480 Speaker 1: would maybe lean towards a larger increase so then they 61 00:03:12,480 --> 00:03:15,480 Speaker 1: can be quiet through the election period. Before resuming their 62 00:03:15,560 --> 00:03:19,520 Speaker 1: their upward right, and Maggie, do what, degreed, do you 63 00:03:19,560 --> 00:03:22,720 Speaker 1: think the investing environment has changed now in terms of 64 00:03:23,120 --> 00:03:27,040 Speaker 1: more being underpinned by fundamentals rather than a seemingly bottomless 65 00:03:27,080 --> 00:03:29,400 Speaker 1: fit punch bowl. And in that context, where do you 66 00:03:29,400 --> 00:03:34,679 Speaker 1: look for opportunities? Well, I think it's hard here because 67 00:03:34,920 --> 00:03:37,480 Speaker 1: we're seeing growth slow down pretty much in all sectors, 68 00:03:37,520 --> 00:03:40,480 Speaker 1: so I don't think any sector will be immune. We 69 00:03:40,600 --> 00:03:43,280 Speaker 1: still like the health care sector because we think they'll 70 00:03:43,280 --> 00:03:47,520 Speaker 1: be secular growth there and it's a fairly priced sector. 71 00:03:47,960 --> 00:03:50,200 Speaker 1: We like industrials because we think there will be a 72 00:03:50,200 --> 00:03:53,200 Speaker 1: lot of capital expenditures and a lot of restoring, so 73 00:03:53,320 --> 00:03:58,240 Speaker 1: companies will benefit from that. And also technology, uh, technology 74 00:03:58,360 --> 00:04:02,080 Speaker 1: is is a vatal sector. There's a nervousness about how 75 00:04:02,160 --> 00:04:04,720 Speaker 1: much pressure it's going to come in. But still it's 76 00:04:04,760 --> 00:04:07,520 Speaker 1: a companies that are hardly liquid, and many of them 77 00:04:07,520 --> 00:04:10,240 Speaker 1: pay attractive dividends, and many of them are still in 78 00:04:10,320 --> 00:04:13,520 Speaker 1: sectors that will have above average secular growth. So we 79 00:04:13,600 --> 00:04:15,920 Speaker 1: think that you know, we may we may add to 80 00:04:16,000 --> 00:04:17,880 Speaker 1: some things here that go down in price over the 81 00:04:17,920 --> 00:04:21,440 Speaker 1: next year, but were position for when growth resumes somewhere 82 00:04:21,440 --> 00:04:25,240 Speaker 1: down the road, which looks possibly late in twenty three. Yeah. 83 00:04:25,400 --> 00:04:27,640 Speaker 1: JP Morgan was saying today, the outlook for the equity 84 00:04:27,640 --> 00:04:29,960 Speaker 1: market in the States is improving for the second half, 85 00:04:30,000 --> 00:04:33,760 Speaker 1: given attractive valuations. And if it's an issue of evaluation, 86 00:04:34,120 --> 00:04:36,560 Speaker 1: you've got to look off shore, and I would imagine 87 00:04:36,560 --> 00:04:38,640 Speaker 1: that you've got to like what you see in many 88 00:04:38,680 --> 00:04:42,320 Speaker 1: markets in nasition. No, well, no, because when you look 89 00:04:42,320 --> 00:04:45,240 Speaker 1: at the economic picture, it looks as if the US 90 00:04:45,480 --> 00:04:48,359 Speaker 1: should have one of the relatively better growth rates of 91 00:04:48,440 --> 00:04:51,599 Speaker 1: major economies. Europe looks as if it's on the brink procession. 92 00:04:52,279 --> 00:04:55,599 Speaker 1: When you look at Asia, China's growth has materially slowed, 93 00:04:56,080 --> 00:04:58,600 Speaker 1: and a lot of the emerging markets in the Asian 94 00:04:58,680 --> 00:05:02,279 Speaker 1: market are very closely tied to their trade with China. 95 00:05:02,640 --> 00:05:06,320 Speaker 1: So we think it's rather hard to see accelerating, vibrant 96 00:05:06,320 --> 00:05:09,520 Speaker 1: grows from those countries when they're tied to China, which 97 00:05:09,720 --> 00:05:12,479 Speaker 1: is don't undergoing some kind of a slowing So we 98 00:05:12,520 --> 00:05:14,240 Speaker 1: think the US is probably going to be one of 99 00:05:14,240 --> 00:05:17,080 Speaker 1: the better places to be investing in. Yeah, we've got 100 00:05:17,120 --> 00:05:19,400 Speaker 1: the c S I three now on the brink of 101 00:05:19,440 --> 00:05:22,520 Speaker 1: a correction. You obviously don't look at this as a 102 00:05:22,560 --> 00:05:26,200 Speaker 1: buying opportunity. I'm guessing, well, not when the fundamentals look 103 00:05:26,240 --> 00:05:29,160 Speaker 1: as if they are still deteriorating and we don't see 104 00:05:29,160 --> 00:05:32,040 Speaker 1: a turnaround in sight. When you're looking at the credit 105 00:05:32,080 --> 00:05:34,120 Speaker 1: markets right now, what are you seeing. I mean, we've 106 00:05:34,160 --> 00:05:37,279 Speaker 1: talked about the volatility in the U. S. Treasuries and 107 00:05:37,360 --> 00:05:39,919 Speaker 1: some of the benchmark rates. How are you seeing a 108 00:05:39,960 --> 00:05:42,680 Speaker 1: corporate credit stack up in the environment that we're in 109 00:05:42,760 --> 00:05:45,560 Speaker 1: right now. Yesterday we had a story about Apple coming 110 00:05:45,560 --> 00:05:48,159 Speaker 1: to market to raves five and a half billion dollars 111 00:05:48,160 --> 00:05:51,240 Speaker 1: to buy back stock. Well, you know, it's it's a 112 00:05:51,279 --> 00:05:55,120 Speaker 1: great example. Um, many many companies have borrowed over the 113 00:05:55,200 --> 00:05:58,440 Speaker 1: last five years when rates were very very low, simply 114 00:05:58,480 --> 00:06:01,040 Speaker 1: because they could, because they said, it's a very very 115 00:06:01,120 --> 00:06:04,599 Speaker 1: cheap way to ensure liquidity. Uh so they don't have 116 00:06:04,640 --> 00:06:07,640 Speaker 1: to worry about the business slowing or inflation going up 117 00:06:07,640 --> 00:06:10,760 Speaker 1: where the banks becoming more restrictive. So we think corporations 118 00:06:10,800 --> 00:06:14,320 Speaker 1: are in great shape. Um. Apple is one of the largest, 119 00:06:14,320 --> 00:06:17,200 Speaker 1: but it's clearly typical. Many companies have borrowed. And even 120 00:06:17,279 --> 00:06:20,080 Speaker 1: if you look at taie yield below investment grade companies, 121 00:06:20,320 --> 00:06:23,600 Speaker 1: they too have borrowed over the last really since the 122 00:06:23,640 --> 00:06:28,039 Speaker 1: financial crisis ended five seven years, to improve their balance sheets, 123 00:06:28,080 --> 00:06:31,440 Speaker 1: to refinance their bank debt, to turn out shorter maturities 124 00:06:31,440 --> 00:06:34,040 Speaker 1: with long maturities, so they too are in great shape. 125 00:06:34,080 --> 00:06:37,200 Speaker 1: So we think the whole credit market, especially how yield, 126 00:06:37,400 --> 00:06:40,920 Speaker 1: is attractive here because the company's balance sheets are probably 127 00:06:40,920 --> 00:06:43,080 Speaker 1: in better shape than they've ever been, so they can 128 00:06:43,120 --> 00:06:46,200 Speaker 1: withstand a slower economy. At the same time, do you 129 00:06:46,240 --> 00:06:49,640 Speaker 1: see many zombie companies wandering the landscape at the moment? 130 00:06:49,960 --> 00:06:54,160 Speaker 1: Do you expect to see some bankruptcies as rates rise? Uh? Yes, 131 00:06:54,480 --> 00:06:59,400 Speaker 1: um or or just companies folding up. These spack sector, 132 00:07:00,080 --> 00:07:03,440 Speaker 1: which was really a creature of zero interest rates, looks 133 00:07:03,440 --> 00:07:05,599 Speaker 1: as if that's really come under a lot of pressure. 134 00:07:06,240 --> 00:07:09,440 Speaker 1: Certainly cryptocurrencies look as if that's under pressure. In the 135 00:07:09,520 --> 00:07:12,520 Speaker 1: high old market. Those in the public market actually look 136 00:07:12,560 --> 00:07:14,800 Speaker 1: in pretty good shape. I would say the more marginal 137 00:07:14,880 --> 00:07:20,320 Speaker 1: credits really went the root of borrowing in the private market, 138 00:07:20,600 --> 00:07:24,120 Speaker 1: uh and in the loan market. And if there's stress, 139 00:07:24,160 --> 00:07:26,640 Speaker 1: we may see it more in the loan market because 140 00:07:26,680 --> 00:07:29,880 Speaker 1: the lower tier companies found they could get better rates 141 00:07:30,400 --> 00:07:34,480 Speaker 1: by doing the loan market rather than coming to the 142 00:07:34,560 --> 00:07:37,320 Speaker 1: public high yield market. So the equality of the high 143 00:07:37,360 --> 00:07:40,679 Speaker 1: yeld market. Bonds outstanding is probably one of the best 144 00:07:40,680 --> 00:07:44,239 Speaker 1: it's ever been, and defaults are running around one percent um, 145 00:07:44,280 --> 00:07:46,480 Speaker 1: and there aren't any major themes that suggest to me 146 00:07:46,560 --> 00:07:48,800 Speaker 1: we'll see a big, big jump in defaults in high 147 00:07:48,880 --> 00:07:52,040 Speaker 1: yield alright, Maggie Patel, thanks so much for joining us 148 00:07:52,040 --> 00:07:55,200 Speaker 1: on bloom Big Daybreak Asia. Maggie has senior portfolio manager 149 00:07:55,360 --> 00:07:57,000 Speaker 1: at old Spring Global Investments.