1
00:00:00,040 --> 00:00:03,480
Speaker 1: Our guest is chet and Seth, Asia, Pacific equity strategist

2
00:00:03,520 --> 00:00:06,560
Speaker 1: at Nomura. I see from the notes that the house

3
00:00:06,640 --> 00:00:09,039
Speaker 1: view there is inflation is going to be very sticky

4
00:00:09,039 --> 00:00:11,319
Speaker 1: in the US and we'll hang around for a long time.

5
00:00:11,320 --> 00:00:14,800
Speaker 1: The Fed has to stay aggressive. We've kind of heard that,

6
00:00:14,920 --> 00:00:17,280
Speaker 1: I suppose from the New Zealand Central Bank this morning

7
00:00:17,280 --> 00:00:19,960
Speaker 1: and also from the Bank of Korea as voiced by

8
00:00:20,000 --> 00:00:24,040
Speaker 1: the Deputy governor. But the counter to that is that

9
00:00:24,360 --> 00:00:27,640
Speaker 1: markets are are sort of telling the central banks you're

10
00:00:27,680 --> 00:00:31,680
Speaker 1: behind us, are you saying, and do you think chatting

11
00:00:31,880 --> 00:00:38,760
Speaker 1: that the markets are wrong? Uh? Well, um, you know

12
00:00:38,800 --> 00:00:41,640
Speaker 1: we've seen this episode before, right if you remember back

13
00:00:41,680 --> 00:00:44,040
Speaker 1: in June that we had a pretty much similar kind

14
00:00:44,080 --> 00:00:49,159
Speaker 1: of rally in stocks. Our assessment is that the movement

15
00:00:49,200 --> 00:00:51,680
Speaker 1: stocks we've seen over the last two days essentially driven

16
00:00:51,720 --> 00:00:55,480
Speaker 1: from very extreme positioning in the stock market and some

17
00:00:55,560 --> 00:00:58,480
Speaker 1: other rasset classes which are varying on equities, such as

18
00:00:58,880 --> 00:01:02,280
Speaker 1: you know, people were very ten y any bonds, you know,

19
00:01:02,320 --> 00:01:05,840
Speaker 1: to year treasuries. People were also long dollar. You know,

20
00:01:05,880 --> 00:01:08,120
Speaker 1: these positions were quite extreme. So what has happened over

21
00:01:08,160 --> 00:01:11,399
Speaker 1: the last couple of days is there have been incrementally

22
00:01:11,440 --> 00:01:14,720
Speaker 1: positive data points, which is just creating this excitement that

23
00:01:14,840 --> 00:01:17,480
Speaker 1: maybe the FED in the next few months may have

24
00:01:17,760 --> 00:01:20,640
Speaker 1: may may actually pause. So I think there's a little

25
00:01:20,640 --> 00:01:23,800
Speaker 1: bit of hope there. But in my view, I think

26
00:01:23,800 --> 00:01:26,640
Speaker 1: the FED will still focus on actual data i e.

27
00:01:27,440 --> 00:01:30,959
Speaker 1: Employment and inflation. They would want to see at least

28
00:01:30,959 --> 00:01:34,399
Speaker 1: two three data points, which kind of supports their view

29
00:01:34,440 --> 00:01:36,120
Speaker 1: that maybe they have to pause. But we are not

30
00:01:36,200 --> 00:01:39,399
Speaker 1: there yet. So you know, it seems like this is

31
00:01:39,440 --> 00:01:42,960
Speaker 1: just a short covering rally base because the position was

32
00:01:43,040 --> 00:01:45,720
Speaker 1: quite extreme and there move is not enough in your

33
00:01:45,800 --> 00:01:49,240
Speaker 1: view to avoid a downturn. How deep a recession and

34
00:01:49,520 --> 00:01:54,600
Speaker 1: how many economies are going to be dragged into this, Yes,

35
00:01:54,720 --> 00:01:57,400
Speaker 1: that's the that's the other challenge, right, So if our

36
00:01:57,440 --> 00:02:01,560
Speaker 1: assessment is correct, I think you'll probably see valuation reset

37
00:02:01,680 --> 00:02:04,880
Speaker 1: happened in the next few weeks or months as we

38
00:02:05,000 --> 00:02:08,560
Speaker 1: reached the speak inflation peak hawkishness team. The timing is

39
00:02:08,600 --> 00:02:11,240
Speaker 1: obviously unclear to us, and then the next step from

40
00:02:11,240 --> 00:02:14,600
Speaker 1: there would be EPs downgrades, which will be dependent on

41
00:02:14,639 --> 00:02:18,200
Speaker 1: the timing, duration and depth of the of the US recession.

42
00:02:18,240 --> 00:02:21,919
Speaker 1: So our house view is that um there is likely

43
00:02:21,960 --> 00:02:24,560
Speaker 1: to be a US a mile long US recession starting

44
00:02:24,600 --> 00:02:28,079
Speaker 1: fourth quarter of two fourth quarter of twenty three, and

45
00:02:28,160 --> 00:02:30,920
Speaker 1: that as that happens, you may see a couple of

46
00:02:31,240 --> 00:02:34,480
Speaker 1: countries in Asia might also see a recession. So one

47
00:02:34,520 --> 00:02:37,680
Speaker 1: country which could possibly see a recession in Asia that

48
00:02:37,720 --> 00:02:39,880
Speaker 1: would be Korear. I know, we want to pick up

49
00:02:39,880 --> 00:02:41,600
Speaker 1: on on what you were talking about in terms of

50
00:02:41,639 --> 00:02:45,440
Speaker 1: some of the the headwinds for the global economy as well,

51
00:02:45,480 --> 00:02:47,520
Speaker 1: but just in terms of what we've been seeing with

52
00:02:47,600 --> 00:02:50,760
Speaker 1: some I guess upside for Asian stocks. There has been

53
00:02:50,840 --> 00:02:54,559
Speaker 1: some supportive factors that buffer a lot of the volatility.

54
00:02:54,639 --> 00:02:59,639
Speaker 1: Where are you seeing potential upside um? Yeah? So well,

55
00:02:59,680 --> 00:03:02,919
Speaker 1: I think the short term outlook is still fairly cautious

56
00:03:02,960 --> 00:03:04,959
Speaker 1: give us given you know, what's happening on the global

57
00:03:05,000 --> 00:03:07,960
Speaker 1: fans around FED and locally it's China's zero college strategy.

58
00:03:08,000 --> 00:03:11,040
Speaker 1: But looking slightly beyond the short term, medium term, our

59
00:03:11,120 --> 00:03:13,520
Speaker 1: argument is that there are still a lot of buffers

60
00:03:13,560 --> 00:03:17,920
Speaker 1: Asian equities have, which means that over the twelve month

61
00:03:18,000 --> 00:03:20,840
Speaker 1: period we may be able to eat out more you know,

62
00:03:20,919 --> 00:03:23,399
Speaker 1: kind of positive out performance. And some of these local

63
00:03:23,440 --> 00:03:25,520
Speaker 1: buffers are that you know, if you look at valuations

64
00:03:25,520 --> 00:03:28,720
Speaker 1: in our part of the world. Generally speaking, most Asian

65
00:03:28,720 --> 00:03:32,160
Speaker 1: equities are training at valuation multiples which are now below

66
00:03:32,200 --> 00:03:35,480
Speaker 1: post GSC average, with the only exception is real in India.

67
00:03:35,920 --> 00:03:38,960
Speaker 1: The evaluations a bit stretched, allocations are generally on the

68
00:03:39,000 --> 00:03:43,320
Speaker 1: lower side. Positioning is relatively light, Sentiment is quite low.

69
00:03:43,400 --> 00:03:45,720
Speaker 1: I was marketing in Hong Kong last week. We met

70
00:03:45,760 --> 00:03:49,080
Speaker 1: like twenty clients, you know, big fundhouses, and you know,

71
00:03:49,120 --> 00:03:52,640
Speaker 1: with the exception of one investor, everyone every investor has

72
00:03:52,640 --> 00:03:55,400
Speaker 1: been cautious. A sentiment is quite low. And at the

73
00:03:55,480 --> 00:03:58,880
Speaker 1: end of the day, while you see possibly a recession

74
00:03:58,880 --> 00:04:02,320
Speaker 1: in the West US and a manager, with the exception

75
00:04:02,360 --> 00:04:05,840
Speaker 1: of Korea, most economies will see will still see positive

76
00:04:06,640 --> 00:04:10,040
Speaker 1: real GDP growth, nominal GDP growth and therefore learning groups,

77
00:04:10,040 --> 00:04:11,720
Speaker 1: so that those are some of the buffers. But of

78
00:04:11,720 --> 00:04:14,440
Speaker 1: course the short term is driven by what happens on

79
00:04:14,480 --> 00:04:17,800
Speaker 1: the global front. Hank Sing in the next futures jump

80
00:04:17,839 --> 00:04:20,640
Speaker 1: four and a half percent. But as you say, very

81
00:04:20,680 --> 00:04:23,880
Speaker 1: low valuations, and the tricky part is the pegged currency

82
00:04:24,320 --> 00:04:26,800
Speaker 1: with with the US doll or high interest rates in

83
00:04:26,839 --> 00:04:29,400
Speaker 1: a place where you know they're in recession, so it

84
00:04:29,680 --> 00:04:32,200
Speaker 1: makes it kind of tough um but but it does.

85
00:04:32,320 --> 00:04:34,000
Speaker 1: It does show you when you get these kind of

86
00:04:34,000 --> 00:04:37,120
Speaker 1: two day rallies that you can't really be completely out

87
00:04:37,120 --> 00:04:40,080
Speaker 1: of market, so you do have to sort of ride

88
00:04:40,080 --> 00:04:42,479
Speaker 1: through some of this. Um So, is that is that

89
00:04:42,520 --> 00:04:45,200
Speaker 1: what you're hearing from investors? Are they so cautious they

90
00:04:45,279 --> 00:04:49,800
Speaker 1: just say get me out? Well, well, it's it's very

91
00:04:49,880 --> 00:04:52,720
Speaker 1: challenging to be honest and um and. I think it's

92
00:04:52,760 --> 00:04:55,839
Speaker 1: more challenging for very short term or entered investors like

93
00:04:55,920 --> 00:04:59,680
Speaker 1: hedge funds, because the rule for underperformance there is really low.

94
00:05:00,240 --> 00:05:03,600
Speaker 1: But my sense is that the long only investors typically

95
00:05:03,600 --> 00:05:06,520
Speaker 1: investors who have a fairly medium term outlook, you know,

96
00:05:06,680 --> 00:05:09,520
Speaker 1: at least letter six, twelve months or even beyond. I

97
00:05:09,520 --> 00:05:11,960
Speaker 1: think some of these investors may be able to see

98
00:05:11,960 --> 00:05:14,560
Speaker 1: through some of the short term volatility. So my suspicion

99
00:05:14,640 --> 00:05:17,520
Speaker 1: is those guys might not be doing a lot. In fact,

100
00:05:17,600 --> 00:05:20,160
Speaker 1: if they do share our you know, kind of this

101
00:05:20,279 --> 00:05:24,360
Speaker 1: cautious fundamental stance, I suspect some of these investors might

102
00:05:24,400 --> 00:05:28,200
Speaker 1: be actually tempted to take profits in this rally. As

103
00:05:28,240 --> 00:05:30,400
Speaker 1: I said, the challenging part too before hedge funds are

104
00:05:30,440 --> 00:05:33,200
Speaker 1: short term you know, macro guys who really have to

105
00:05:33,760 --> 00:05:37,159
Speaker 1: you know, catch these rallies because the room for underperformances

106
00:05:37,320 --> 00:05:40,599
Speaker 1: is really low. We're looking very closely at OPEC plus

107
00:05:40,600 --> 00:05:43,880
Speaker 1: considering their biggest production cuts since and whether or not

108
00:05:43,960 --> 00:05:47,640
Speaker 1: that reduction will actually have an impact on actual supplies.

109
00:05:47,960 --> 00:05:49,960
Speaker 1: Do you think that they will it will be enough

110
00:05:50,080 --> 00:05:55,679
Speaker 1: rather to revive the oil rally. Yeah, To be honest,

111
00:05:55,680 --> 00:05:58,440
Speaker 1: I don't have strong views there. Whether you know this.

112
00:05:58,760 --> 00:06:02,440
Speaker 1: You know, people are speculating a two million battles of

113
00:06:02,720 --> 00:06:05,440
Speaker 1: production cut, whether it will be enough to move oil

114
00:06:05,480 --> 00:06:07,359
Speaker 1: prices higher? Because I think there are lots of cross

115
00:06:07,400 --> 00:06:10,120
Speaker 1: currents for oil. You know, one is clearly you know

116
00:06:10,160 --> 00:06:13,159
Speaker 1: what happened to China's zero COVID strategy going forward, and

117
00:06:13,200 --> 00:06:15,440
Speaker 1: then really global issues like you know, the recession of

118
00:06:15,480 --> 00:06:18,839
Speaker 1: the West. So what what what would be interesting is,

119
00:06:18,880 --> 00:06:21,280
Speaker 1: let's say if you do see oil prices go up

120
00:06:21,320 --> 00:06:25,440
Speaker 1: and sustain at higher level, that could be another kind

121
00:06:25,480 --> 00:06:29,680
Speaker 1: of headwind for Asian equities, specifically the big net importers

122
00:06:30,120 --> 00:06:34,000
Speaker 1: in Asia, you know, the couption of you know, yeah, yeah,

123
00:06:34,040 --> 00:06:36,000
Speaker 1: you mentioned you don't have that strong views on that,

124
00:06:36,040 --> 00:06:39,440
Speaker 1: but you were mentioning before the break that what you'd

125
00:06:39,440 --> 00:06:42,240
Speaker 1: need to see to turn more positive could you finish

126
00:06:42,279 --> 00:06:47,800
Speaker 1: those thoughts well? So, for meally, the moderation definition is

127
00:06:48,279 --> 00:06:51,000
Speaker 1: we see core CPI month on month and or core

128
00:06:51,120 --> 00:06:54,599
Speaker 1: pc month on month around zero point two percent for

129
00:06:54,760 --> 00:06:58,240
Speaker 1: let's say at least two to three data points consecutive

130
00:06:58,320 --> 00:07:01,640
Speaker 1: data points. I suspect the market might come to this

131
00:07:01,839 --> 00:07:06,839
Speaker 1: narrative that inflation annualized inflation is indeed showing zero point

132
00:07:06,839 --> 00:07:09,039
Speaker 1: two translates to around two point four percent. So that's

133
00:07:09,080 --> 00:07:11,760
Speaker 1: that's the idea, alright, Chutt, and always a pleasure, thank you.

134
00:07:11,800 --> 00:07:15,080
Speaker 1: Chet On Seth Asia, Pacific equity strategist at Nomura