WEBVTT - Tim Moe on the Markets (Audio)

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<v Speaker 1>Let's get to Tim Moe. He is the chief a

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<v Speaker 1>pack equity strategist at Goldman Sachs who joins from Singapore. Tim,

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<v Speaker 1>thanks for being with us. Let's talk mainland China. We

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<v Speaker 1>have a little bit of disappointment that Evergrand did not

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<v Speaker 1>deliver its preliminary restructuring plan as it said it or

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<v Speaker 1>as it promised to do by the end of July,

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<v Speaker 1>and then over the weekend an unexpected contraction and factory activity.

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<v Speaker 1>Are you barish on China? Uh No, Doug, I'm sorry,

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<v Speaker 1>We're We're not. I mean it's it was certainly disappointed

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<v Speaker 1>by the by the pm MY number that came out,

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<v Speaker 1>which forty nine. That was lower than in the expectation.

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<v Speaker 1>I would know there's a bit of a buffering that

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<v Speaker 1>the non manufacturing pm I, the service of pm I

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<v Speaker 1>reduced a bit also, but it's still comfortably about fifty.

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<v Speaker 1>So there's a bit of a bit of a buffer

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<v Speaker 1>in the numbers. But that doesn't gloss over the fact

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<v Speaker 1>that that that the activity levels are weak. We still

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<v Speaker 1>think that when the full July data said it comes out, uh,

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<v Speaker 1>and that was printed sometime over the next over the

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<v Speaker 1>next two weeks, that um, you know the picture will

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<v Speaker 1>still be one of a sequential recovery from the depths

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<v Speaker 1>of the of the second quarter, and that really is

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<v Speaker 1>our sort of core construct for China equities, which is

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<v Speaker 1>that we expect to see sequential, rebounded economic activity, although

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<v Speaker 1>as as mentioned, there's some some concern there about that

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<v Speaker 1>UM number two, the equity market has discounted a lot

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<v Speaker 1>of concern, particularly given the soft performance in July. We

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<v Speaker 1>gave back a lot of the very strong second quarter

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<v Speaker 1>out performance UH and and strong absolute performance UM and

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<v Speaker 1>overall investor position is still quite light UM. So we

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<v Speaker 1>still think that there are good reasons I think that

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<v Speaker 1>China equities can continue to make some progress into the Congress. UH.

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<v Speaker 1>Clearly there will be all eyes on the extent to

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<v Speaker 1>which policy support even be forthcoming, And I think where

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<v Speaker 1>what the market is concerned about right now? And Tim,

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<v Speaker 1>were you surprised that we kind of had a lack

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<v Speaker 1>of detail in terms of new stimulus policies announced last week. Yeah,

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<v Speaker 1>in a word, yes, and I think to unpact that

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<v Speaker 1>a little bit further. That I think with the authorities

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<v Speaker 1>and policy makers are trying to do is walk a

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<v Speaker 1>fairly narrow line between providing adequate support and and appropriate

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<v Speaker 1>support for an economy which clearly needs it, but not

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<v Speaker 1>committing the same mistakes that they did over ten years

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<v Speaker 1>ago post the gold financial crisis when they overstimulated and

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<v Speaker 1>then got into the huge debt build up which they're

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<v Speaker 1>still dealing with. So uh that that's a pretty narrow

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<v Speaker 1>path to walk. And uh, you know, like I think

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<v Speaker 1>the short term tactical risk is that they maybe air

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<v Speaker 1>too much in the side of being conservative and not

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<v Speaker 1>providing enough support for the economy because at the end

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<v Speaker 1>of the day, growth is you know, it's critical, particularly

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<v Speaker 1>want to avoid credit success. One most important thing is

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<v Speaker 1>and sure the comedy used to grow. Timm chief Asia

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<v Speaker 1>Pacific equity strategist at Goldman SACS, also joining us from

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<v Speaker 1>Singapore to discuss your views on some of the other

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<v Speaker 1>countries that were watching in the Asia Pacific. Doug mentioned

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<v Speaker 1>that your call here is a chance of recession in

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<v Speaker 1>Australia over the next twelve months and thirty to thirty

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<v Speaker 1>in New Zealand. I was just in Australia a few

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<v Speaker 1>weeks ago. I could agree with you with your amount

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<v Speaker 1>of spending. I saw and every single restaurant and cafe

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<v Speaker 1>absolutely packed. Why do you think that these countries will

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<v Speaker 1>avoid a recession? Is it the fact that there's just

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<v Speaker 1>very strong household balance sheets here. Well, the key point,

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<v Speaker 1>and this was articulated in relief just this morning by

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<v Speaker 1>one of our Australian economists, is that if you look

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<v Speaker 1>at the factors which have tended to contribute to software

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<v Speaker 1>economic growth in EGO Australia or New Zealand, um, and

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<v Speaker 1>they tend to include things like what's going on elsewhere

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<v Speaker 1>obviously in the United States where we've had some week

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<v Speaker 1>week numbers, in Europe, but also at variety of domestic

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<v Speaker 1>indicators including equity prices and also various other activity measures. Uh,

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<v Speaker 1>you can construct very statistical models which which would quantify

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<v Speaker 1>the probability of recession. And the point of report this

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<v Speaker 1>morning was that, you know, we put all that stuff

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<v Speaker 1>into the models that we've constructed that suggests that there's

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<v Speaker 1>about chance of recession of the next twelve months in Australia.

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<v Speaker 1>Now we are at haste to point out that this

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<v Speaker 1>is just sort of a rough guide lo the the

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<v Speaker 1>strict rule, but it just suggests that there's a number

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<v Speaker 1>of indicators that we need to need to we need

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<v Speaker 1>to monitor. Not to be clear, our base case deep

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<v Speaker 1>expectation is not that we will have recession, but we

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<v Speaker 1>just highlighting the fact that you know this, this comfluence

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<v Speaker 1>of events suggest that those risks have indeed increased. So

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<v Speaker 1>we seem to be in agreement that the global growth

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<v Speaker 1>is going to have a meaningful slowdown, whether it's in Europe,

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<v Speaker 1>parts of Asia, or Europe or the US. But I'm

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<v Speaker 1>wondering Tim whether or not you think there is a

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<v Speaker 1>greater probability now that we're going to have a potential

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<v Speaker 1>FED pivot sometime, let's say in the next six months. Well,

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<v Speaker 1>that's clearly what the market is expecting. If you look

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<v Speaker 1>at the full pricing of FED funds, and what you'll

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<v Speaker 1>see is that the market and we buy UH and

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<v Speaker 1>we as well, are looking at a fifty basis point

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<v Speaker 1>hike in September and then two finals point hikes in

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<v Speaker 1>November and in December. Where there's a variant, however, is

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<v Speaker 1>that we think that the FED will likely stay at

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<v Speaker 1>roughly is sort of the three point three rate for

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<v Speaker 1>some time, where the market is actually pricing in between

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<v Speaker 1>two and three cuts over the next twelve months to

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<v Speaker 1>the end of three UM That seems to us to

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<v Speaker 1>be overly optimistic or overly sort of confident about about

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<v Speaker 1>FED cutting, or maybe from the equity market perspective, I

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<v Speaker 1>think the cognitive dissidence that we would identify is that

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<v Speaker 1>if the markets indeed correct in its pricing of the

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<v Speaker 1>FED starting to cut immuniquely, then the earnings growth numbers,

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<v Speaker 1>for example for the SNP look over optimistic, you know,

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<v Speaker 1>when you can't sort of have you know, pretty decent

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<v Speaker 1>earnings growth, while at the same time, the fed's cutting,

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<v Speaker 1>which would like could be catalyzed by a much weaker

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<v Speaker 1>economy than than those sort of earnings UH forecasts would

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<v Speaker 1>will be relying on that in terms, suggests that the

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<v Speaker 1>market might be getting little bit over optimistic about uh,

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<v Speaker 1>you know, the sort sweet spot here in terms of

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<v Speaker 1>easy FED but still you know, still good good earnings growth.

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<v Speaker 1>Tim final quick word on career. We saw exports extend

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<v Speaker 1>gains in July. You are market weight on South Korea.

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<v Speaker 1>That's correct, we market weight, but but really sort of

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<v Speaker 1>h you know, you know, itching to be more constructive,

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<v Speaker 1>I realized you don't have too much time now. But

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<v Speaker 1>the high level story is that Korea is clearly sort

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<v Speaker 1>of the most globally sensitive cyclic group economy and equity

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<v Speaker 1>market in the region, and so you want to be

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<v Speaker 1>a little bit careful about being overly constructive as the

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<v Speaker 1>global comedy looks like it's low down. There's all the

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<v Speaker 1>recent evidence and what we've just been talking about would

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<v Speaker 1>suggest that. Being said, the market looks very expensive. It's

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<v Speaker 1>trading very much towards low end of its historical range,

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<v Speaker 1>both in absolute terms and also relative to the rest

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<v Speaker 1>of the region. Um, and we've got a couple of

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<v Speaker 1>other cattles that could be coming up. So we want

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<v Speaker 1>to be turning more construction, but just needs a bit

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<v Speaker 1>early to do so. All right, thank you so much,

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<v Speaker 1>as a West tim O, Chief Asia Pacific equity strategist

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<v Speaker 1>at Goldman Sex on the line for us from Singapore,