WEBVTT - Olivier d'Assier on the Markets (Audio)

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<v Speaker 1>Let's get to our guests. Olivia Dossier, head of applied

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<v Speaker 1>research for a pack at Contigo. He's on the line

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<v Speaker 1>from Singapore. Olivier, thanks for being with us. I'm wondering

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<v Speaker 1>whether you're advising clients in the current environment. Hey, let's

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<v Speaker 1>avoid China, put money to work in the US. Are

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<v Speaker 1>you doing that? I think you know that the issues

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<v Speaker 1>with investing in China is not uh, nothing to do

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<v Speaker 1>with what's happened this week right there. The COVID policy

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<v Speaker 1>is holding people back because obviously you can't forecast consumer

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<v Speaker 1>demand when you can't forecast if they'll be able to

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<v Speaker 1>go shop. So I think that's been holding investors back

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<v Speaker 1>for from now. You had a couple of weeks of

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<v Speaker 1>good markets in China when the regulators were being very

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<v Speaker 1>you know, pro growth after the reopening of the previous lockdown.

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<v Speaker 1>But that's not enough to carry people people back, especially

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<v Speaker 1>when you know the U S or other markets are

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<v Speaker 1>doing very well. Not enough to carry people back the

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<v Speaker 1>hubs in July when we saw that huge underperform. But

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<v Speaker 1>when we're looking ahead to you know, this very important

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<v Speaker 1>Congress in China and expected more stimulus, particularly to try

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<v Speaker 1>and support the property sector. Could you say we are

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<v Speaker 1>going to see some more rallying coming through into the

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<v Speaker 1>end of the year. It's possible because again, regulators can

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<v Speaker 1>make a big difference in at least with local investors.

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<v Speaker 1>There is still a very big question mark about the

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<v Speaker 1>health of the real estate UH sector in China, and

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<v Speaker 1>the debt burden and US interest races still going up

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<v Speaker 1>to anything with US denominated debt is going to be

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<v Speaker 1>something to avoid UH, regardless of what happens UH. So

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<v Speaker 1>you know you're going to get the usual around October

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<v Speaker 1>type of rally from from from local investors, but it's

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<v Speaker 1>not going to be enough to woo foreign investors back

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<v Speaker 1>in for especially when they're making such great games outside

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<v Speaker 1>of China. Now, yeah, a tough call to I mean

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<v Speaker 1>for markets in the region that are heavily dependent on

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<v Speaker 1>a strong Chinese economy. I'm thinking of South Korea as

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<v Speaker 1>one example. But I don't want to speak or what

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<v Speaker 1>we're in your mouth. Are there opportunities in the Asia

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<v Speaker 1>Pacific that you like right now outside of China. It's

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<v Speaker 1>difficult because, as you say, China is a big piece

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<v Speaker 1>of the puzzle for a lot of the countries around UH,

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<v Speaker 1>around Asia Pacific, So obviously that's a that's an issue.

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<v Speaker 1>The Japan UH market is also a little bit troubling

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<v Speaker 1>because you know, the end is way too weak. The

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<v Speaker 1>central bank there has not yet moved against inflation, and

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<v Speaker 1>consumers are feeling the pain the longer at last. UH.

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<v Speaker 1>You know that they power six the GDP in that country.

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<v Speaker 1>So if you don't look after consumers interest, you're in

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<v Speaker 1>trouble down the road. So I think there's question marks

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<v Speaker 1>now about the economy in Japan as well, especially after

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<v Speaker 1>the summer is over. We've been looking at the OPEC

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<v Speaker 1>Plus meeting, which just had that modest increase in supply

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<v Speaker 1>in oil. UH. What does that mean for crude oil

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<v Speaker 1>prices in this cycle and other risk assets that we

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<v Speaker 1>kind of reached peak oil. I think that's a good

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<v Speaker 1>news obviously for for risk assets in general, because obviously

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<v Speaker 1>how much people pay at the pump will eat into

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<v Speaker 1>their consumption budgets and that eventually will feed to lower

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<v Speaker 1>demand for other products. Right. So, so far the earning

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<v Speaker 1>season has shown that companies have been able to pass

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<v Speaker 1>on higher costs through higher prices and consumers have been

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<v Speaker 1>willing to pay for But if if gas of the

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<v Speaker 1>bump stays high for for a long period of time,

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<v Speaker 1>they increasingly will not be able to pay or not

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<v Speaker 1>be willing to pay higher prices for other goods. So, uh,

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<v Speaker 1>lower gas prices is good news for the market for sure. Yeah,

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<v Speaker 1>we had the news in the U S session that

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<v Speaker 1>the American government reported an unexpected building inventories for both

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<v Speaker 1>crude and gasoline. So maybe we're seeing a bit of

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<v Speaker 1>demand destruction the consequence perhaps of FED tightening. Where are

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<v Speaker 1>you with with the FEDS strategy right now? And do

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<v Speaker 1>you expect hard landing? Do you are you forecasting recession?

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<v Speaker 1>So what we see is that the consensus into one

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<v Speaker 1>among investors with that inflation was winning, Inflation was beating

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<v Speaker 1>central bank uh. So central banks got very aggressive in

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<v Speaker 1>Q two, announced the very aggressive second half as well,

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<v Speaker 1>and by the end of Q two by June. The

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<v Speaker 1>end of June, investors felt that it could end in

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<v Speaker 1>a draw. Right, So what they did was rebalance their

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<v Speaker 1>portfolios because their portfolios had been position for a worst

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<v Speaker 1>case scenario during Q one UH, and now we saw

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<v Speaker 1>in July the switched to a base case scenario where

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<v Speaker 1>inflation and the FED might end in a draw. The

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<v Speaker 1>next question is what about the FED and the economy

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<v Speaker 1>night So far, Uh, this is also looking like a draw.

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<v Speaker 1>We're getting mixed messages on the macro front, but mostly

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<v Speaker 1>positive ones. We're getting positive news on the earning front.

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<v Speaker 1>So as long as unemployment, as long as you know,

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<v Speaker 1>the economy remains a full employment, people will have money

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<v Speaker 1>to pay for for for goods, even if the prices

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<v Speaker 1>is a little higher. So I think that's going to

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<v Speaker 1>be the switch that we're going to see from for

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<v Speaker 1>investors in terms of focus. They're gonna look more at

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<v Speaker 1>the employment numbers, the economic number, growth numbers, rather than

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<v Speaker 1>inflation going forward. I think if that's going to take

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<v Speaker 1>care of that, and they'll focus on whether or not

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<v Speaker 1>people will have, you know, wages to pay for for

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<v Speaker 1>increased prices. You point out that we're expecting tightening from

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<v Speaker 1>central banks pretty much globally acceptable. We've touched on China

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<v Speaker 1>and the b o J. You say it doesn't seem

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<v Speaker 1>to have gotten the memo. When could we potentially see

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<v Speaker 1>a change in strategy from the Bank of Japan. I think,

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<v Speaker 1>you know, in Japan, it's going to be up to

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<v Speaker 1>the consumers to send that message to to the b

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<v Speaker 1>o J. Uh, obviously after the summer and the end

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<v Speaker 1>of the tourist season the weekend. Uh, you know, Uh,

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<v Speaker 1>it's not going to be a main factor, but consumers

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<v Speaker 1>control and consumer spending a sixt GDP in Japan. If

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<v Speaker 1>they don't, if they stop going to the stores, if

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<v Speaker 1>they stop buying, the bog will get the message. Olivia,

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<v Speaker 1>we had a historic visit this week from HOW Speaker

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<v Speaker 1>Nancy Pelosi to Taiwan and subsequent response from China that

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<v Speaker 1>was I think fair to say a little angry. Markets

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<v Speaker 1>were on edge as a result of that. Do you

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<v Speaker 1>think China will drive a wedge deeper into some of

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<v Speaker 1>these important relationships, whether it's Taiwan in and of itself

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<v Speaker 1>for the US, I think, you know, the U S

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<v Speaker 1>China relationship is obviously a big h to your political

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<v Speaker 1>impact for for investors, but it's background noise right now,

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<v Speaker 1>still earning this front. Uh noise. So is the Fed.

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<v Speaker 1>So is inflation. So I don't I don't perceive a

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<v Speaker 1>lot of movement from that. It depends if the situation

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<v Speaker 1>between the US and China gets worse. Right, it got

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<v Speaker 1>really bad when when we had the trade war under

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<v Speaker 1>Resident Trumps, we thought it might be better under a Biden.

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<v Speaker 1>It hasn't. Will it get even worse? That is the

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<v Speaker 1>big question. And so far it's all the response we're seeing.

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<v Speaker 1>It's China Taiwan response. We're not really seeing a U. S.

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<v Speaker 1>China response yet from them, so the market is going

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<v Speaker 1>to ignore that. Alright. Oh, it's great to have your insights.

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<v Speaker 1>Thank you so much. Olivia Dosia has head over applied

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<v Speaker 1>research for APEC from Kintingo on the line for US

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<v Speaker 1>from Singapore,