Speaker 1: Let's get to Tim Moe. He is the chief a
Speaker 1: pack equity strategist at Goldman Sachs who joins from Singapore. Tim,
Speaker 1: thanks for being with us. Let's talk mainland China. We
Speaker 1: have a little bit of disappointment that Evergrand did not
Speaker 1: deliver its preliminary restructuring plan as it said it or
Speaker 1: as it promised to do by the end of July,
Speaker 1: and then over the weekend an unexpected contraction and factory activity.
Speaker 1: Are you barish on China? Uh No, Doug, I'm sorry,
Speaker 1: We're We're not. I mean it's it was certainly disappointed
Speaker 1: by the by the pm MY number that came out,
Speaker 1: which forty nine. That was lower than in the expectation.
Speaker 1: I would know there's a bit of a buffering that
Speaker 1: the non manufacturing pm I, the service of pm I
Speaker 1: reduced a bit also, but it's still comfortably about fifty.
Speaker 1: So there's a bit of a bit of a buffer
Speaker 1: in the numbers. But that doesn't gloss over the fact
Speaker 1: that that that the activity levels are weak. We still
Speaker 1: think that when the full July data said it comes out, uh,
Speaker 1: and that was printed sometime over the next over the
Speaker 1: next two weeks, that um, you know the picture will
Speaker 1: still be one of a sequential recovery from the depths
Speaker 1: of the of the second quarter, and that really is
Speaker 1: our sort of core construct for China equities, which is
Speaker 1: that we expect to see sequential, rebounded economic activity, although
Speaker 1: as as mentioned, there's some some concern there about that
Speaker 1: UM number two, the equity market has discounted a lot
Speaker 1: of concern, particularly given the soft performance in July. We
Speaker 1: gave back a lot of the very strong second quarter
Speaker 1: out performance UH and and strong absolute performance UM and
Speaker 1: overall investor position is still quite light UM. So we
Speaker 1: still think that there are good reasons I think that
Speaker 1: China equities can continue to make some progress into the Congress. UH.
Speaker 1: Clearly there will be all eyes on the extent to
Speaker 1: which policy support even be forthcoming, And I think where
Speaker 1: what the market is concerned about right now? And Tim,
Speaker 1: were you surprised that we kind of had a lack
Speaker 1: of detail in terms of new stimulus policies announced last week. Yeah,
Speaker 1: in a word, yes, and I think to unpact that
Speaker 1: a little bit further. That I think with the authorities
Speaker 1: and policy makers are trying to do is walk a
Speaker 1: fairly narrow line between providing adequate support and and appropriate
Speaker 1: support for an economy which clearly needs it, but not
Speaker 1: committing the same mistakes that they did over ten years
Speaker 1: ago post the gold financial crisis when they overstimulated and
Speaker 1: then got into the huge debt build up which they're
Speaker 1: still dealing with. So uh that that's a pretty narrow
Speaker 1: path to walk. And uh, you know, like I think
Speaker 1: the short term tactical risk is that they maybe air
Speaker 1: too much in the side of being conservative and not
Speaker 1: providing enough support for the economy because at the end
Speaker 1: of the day, growth is you know, it's critical, particularly
Speaker 1: want to avoid credit success. One most important thing is
Speaker 1: and sure the comedy used to grow. Timm chief Asia
Speaker 1: Pacific equity strategist at Goldman SACS, also joining us from
Speaker 1: Singapore to discuss your views on some of the other
Speaker 1: countries that were watching in the Asia Pacific. Doug mentioned
Speaker 1: that your call here is a chance of recession in
Speaker 1: Australia over the next twelve months and thirty to thirty
Speaker 1: in New Zealand. I was just in Australia a few
Speaker 1: weeks ago. I could agree with you with your amount
Speaker 1: of spending. I saw and every single restaurant and cafe
Speaker 1: absolutely packed. Why do you think that these countries will
Speaker 1: avoid a recession? Is it the fact that there's just
Speaker 1: very strong household balance sheets here. Well, the key point,
Speaker 1: and this was articulated in relief just this morning by
Speaker 1: one of our Australian economists, is that if you look
Speaker 1: at the factors which have tended to contribute to software
Speaker 1: economic growth in EGO Australia or New Zealand, um, and
Speaker 1: they tend to include things like what's going on elsewhere
Speaker 1: obviously in the United States where we've had some week
Speaker 1: week numbers, in Europe, but also at variety of domestic
Speaker 1: indicators including equity prices and also various other activity measures. Uh,
Speaker 1: you can construct very statistical models which which would quantify
Speaker 1: the probability of recession. And the point of report this
Speaker 1: morning was that, you know, we put all that stuff
Speaker 1: into the models that we've constructed that suggests that there's
Speaker 1: about chance of recession of the next twelve months in Australia.
Speaker 1: Now we are at haste to point out that this
Speaker 1: is just sort of a rough guide lo the the
Speaker 1: strict rule, but it just suggests that there's a number
Speaker 1: of indicators that we need to need to we need
Speaker 1: to monitor. Not to be clear, our base case deep
Speaker 1: expectation is not that we will have recession, but we
Speaker 1: just highlighting the fact that you know this, this comfluence
Speaker 1: of events suggest that those risks have indeed increased. So
Speaker 1: we seem to be in agreement that the global growth
Speaker 1: is going to have a meaningful slowdown, whether it's in Europe,
Speaker 1: parts of Asia, or Europe or the US. But I'm
Speaker 1: wondering Tim whether or not you think there is a
Speaker 1: greater probability now that we're going to have a potential
Speaker 1: FED pivot sometime, let's say in the next six months. Well,
Speaker 1: that's clearly what the market is expecting. If you look
Speaker 1: at the full pricing of FED funds, and what you'll
Speaker 1: see is that the market and we buy UH and
Speaker 1: we as well, are looking at a fifty basis point
Speaker 1: hike in September and then two finals point hikes in
Speaker 1: November and in December. Where there's a variant, however, is
Speaker 1: that we think that the FED will likely stay at
Speaker 1: roughly is sort of the three point three rate for
Speaker 1: some time, where the market is actually pricing in between
Speaker 1: two and three cuts over the next twelve months to
Speaker 1: the end of three UM That seems to us to
Speaker 1: be overly optimistic or overly sort of confident about about
Speaker 1: FED cutting, or maybe from the equity market perspective, I
Speaker 1: think the cognitive dissidence that we would identify is that
Speaker 1: if the markets indeed correct in its pricing of the
Speaker 1: FED starting to cut immuniquely, then the earnings growth numbers,
Speaker 1: for example for the SNP look over optimistic, you know,
Speaker 1: when you can't sort of have you know, pretty decent
Speaker 1: earnings growth, while at the same time, the fed's cutting,
Speaker 1: which would like could be catalyzed by a much weaker
Speaker 1: economy than than those sort of earnings UH forecasts would
Speaker 1: will be relying on that in terms, suggests that the
Speaker 1: market might be getting little bit over optimistic about uh,
Speaker 1: you know, the sort sweet spot here in terms of
Speaker 1: easy FED but still you know, still good good earnings growth.
Speaker 1: Tim final quick word on career. We saw exports extend
Speaker 1: gains in July. You are market weight on South Korea.
Speaker 1: That's correct, we market weight, but but really sort of
Speaker 1: h you know, you know, itching to be more constructive,
Speaker 1: I realized you don't have too much time now. But
Speaker 1: the high level story is that Korea is clearly sort
Speaker 1: of the most globally sensitive cyclic group economy and equity
Speaker 1: market in the region, and so you want to be
Speaker 1: a little bit careful about being overly constructive as the
Speaker 1: global comedy looks like it's low down. There's all the
Speaker 1: recent evidence and what we've just been talking about would
Speaker 1: suggest that. Being said, the market looks very expensive. It's
Speaker 1: trading very much towards low end of its historical range,
Speaker 1: both in absolute terms and also relative to the rest
Speaker 1: of the region. Um, and we've got a couple of
Speaker 1: other cattles that could be coming up. So we want
Speaker 1: to be turning more construction, but just needs a bit
Speaker 1: early to do so. All right, thank you so much,
Speaker 1: as a West tim O, Chief Asia Pacific equity strategist
Speaker 1: at Goldman Sex on the line for us from Singapore,