WEBVTT - Vasu Menon on the Markets (Audio)

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<v Speaker 1>Let's get to our guest, Vasu Menon is whether it's

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<v Speaker 1>executive director of Investment Strategy at OCBC Bank Wealth Management

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<v Speaker 1>on the line from Singapore, vas who thank you for

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<v Speaker 1>being with us. At the top of the hour, We're

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<v Speaker 1>going to get these data points for the Chinese economy

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<v Speaker 1>and our forecast indicates that they're likely to show modest

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<v Speaker 1>improvement in the month of July. Is that a safe

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<v Speaker 1>bet at this point? Uh? That good morning, and yes,

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<v Speaker 1>I think it is a safe bet to show that,

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<v Speaker 1>you know, China will show a slight improvement in July

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<v Speaker 1>compared to June. I wouldn't be surprised if that happens.

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<v Speaker 1>But the key word here is slight. You know, there

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<v Speaker 1>are still several hit wins in China. Uh, they're still

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<v Speaker 1>COVID lockdowns taking place, your COVID flay ups taking place

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<v Speaker 1>in China. Uh. You've had stimulus, but no big bang

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<v Speaker 1>in China. So you know, yes, the economy is slowly

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<v Speaker 1>getting back on its feet, but it's a gradual recovery.

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<v Speaker 1>But even with that gradual recovery, they're still hit wins

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<v Speaker 1>hit in China, and so you know, China is not

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<v Speaker 1>completely out of the woods. China not completely out of

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<v Speaker 1>the woods. But what do you think in terms of

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<v Speaker 1>that quarterly Monetary policy statement we had from the PBOC

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<v Speaker 1>last week that kind of sounded a warning sign about

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<v Speaker 1>what you've seen from the US and Europe in regards

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<v Speaker 1>to stimulus and their efforts to kind of fight inflation too.

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<v Speaker 1>Does that mean that we don't see as much stimulus

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<v Speaker 1>coming through from the pipeline in China. Well, I wouldn't

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<v Speaker 1>be surprised if that's the case. You know, I wouldn't

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<v Speaker 1>be surprised if the Chinese authorities do not undertake the

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<v Speaker 1>Big Bang approach. I think they clearly don't want to

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<v Speaker 1>oversteal with the economy. They've done that before. They're seeing

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<v Speaker 1>what happens. In fact, they're still paying the price written

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<v Speaker 1>in to some extent because you know, we've got the

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<v Speaker 1>property market bubble partly because of previous stimulus as well.

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<v Speaker 1>And I think they'll be gradual in the way they

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<v Speaker 1>manage this. You know, they've got they're fighting against several

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<v Speaker 1>global head winds, uh, you know that are beyond their control,

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<v Speaker 1>so they will manage this carefully. Uh. But nevertheless, you know,

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<v Speaker 1>they've got the dripe out and they can uh, you know,

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<v Speaker 1>invoked the dripe out they need to, but I think

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<v Speaker 1>they will move gradually, not the big bang approach. Something

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<v Speaker 1>else must be a foot. If you look at the

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<v Speaker 1>credit data from last Friday, shockingly weak numbers aggregate fan

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<v Speaker 1>financing nearly half of what economists we're expecting. What's going

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<v Speaker 1>on here? Well, you know the reality is that you know,

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<v Speaker 1>Main Street in China is still not doing as well,

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<v Speaker 1>right because you know the economy is still slowly getting

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<v Speaker 1>make on its feet. Yes, well, you know, the government

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<v Speaker 1>can push for stimulus the previews, he can supposedly push

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<v Speaker 1>for stimudus, get the banks to lend. The real demand

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<v Speaker 1>out there is still fairly weak because of what's happening

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<v Speaker 1>with the COVID situation, because of what's happening the property sector.

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<v Speaker 1>That's a dragon the economy, you know. So I think

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<v Speaker 1>it's a reflection of the fact that you know, real

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<v Speaker 1>demand is relatively weak. You know, corporates are careful consumerus

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<v Speaker 1>to some extent a careful as well, and you know

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<v Speaker 1>that's partly coming through in the credit data you just mentioned.

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<v Speaker 1>See when we look at the I guess kind of

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<v Speaker 1>bear market rally that you're seeing in the SMP five.

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<v Speaker 1>What kind of helps to propel that further? Is it

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<v Speaker 1>a dubbish pivot by the FED or have we kind

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<v Speaker 1>of seen a top in this rally? Well, you know, yeah,

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<v Speaker 1>the market have u surprised everyone in the SMP founder

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<v Speaker 1>is almost seventeen percent from the middle of June. I mean,

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<v Speaker 1>that's quite a big move upwards, and a few things

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<v Speaker 1>have propelled it. I think the earning season has propelled

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<v Speaker 1>it partly. I mean, you've got better than expected earnings

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<v Speaker 1>coming out of the US. But the question is is

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<v Speaker 1>this sustainable in the coming quarters. You've not any major surprises.

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<v Speaker 1>You know, more than seventy percent of companies have exceeded

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<v Speaker 1>market expectations. I think the other fact that you just

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<v Speaker 1>mentioned is a do wish pivot by the FAT. I

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<v Speaker 1>think the better than expected CPN numbers, the declining pp

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<v Speaker 1>A numbers so last week has resulted in you know,

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<v Speaker 1>markets changing the expectation to a wish fat. But I

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<v Speaker 1>think the FAT is not ready to turn davish. Uh.

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<v Speaker 1>They might do that, you know, sometime later this year,

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<v Speaker 1>early next year, but hey, they're not ready for it.

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<v Speaker 1>So when we're looking at markets, Uh, we have seen

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<v Speaker 1>some momentum coming through in the Asian stock benchmark, but

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<v Speaker 1>the durability of the recovery already been questioned, and we've

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<v Speaker 1>got analysts predicting the biggest profit drop for Asian equity

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<v Speaker 1>since the pandemic started. So does that mean that we

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<v Speaker 1>kind of an underperformance here from the ms c I

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<v Speaker 1>Asia Pacific Index versus what we're saying in that rally

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<v Speaker 1>we saw on the SMP five. Uh, definitely, I mean, Juliet,

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<v Speaker 1>I mean you've already seen that underperformance take place. I mean,

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<v Speaker 1>the US stock market is clearly taking the lead. UH

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<v Speaker 1>is charging a hit. It also came down the most Uh,

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<v Speaker 1>you know when you have saw the correction, and also

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<v Speaker 1>therefore you're also seeing a nicely bound in the U

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<v Speaker 1>stock markets. And Asia is legging. And I'm not surprised

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<v Speaker 1>because you know, the US all is very strong. Asian

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<v Speaker 1>currencies have been generally weak. Manatoring policy in Asia expected

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<v Speaker 1>we you know, Titan support the currencies to some extent,

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<v Speaker 1>and so they had wins in Asia two. I mean,

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<v Speaker 1>of course, you know, we talked about China quite a bit, uh,

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<v Speaker 1>and China remains an uncertainty for Asian economies. So there

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<v Speaker 1>they are issues with Asia, you know, uncertainties with Asia,

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<v Speaker 1>but that doesn't mean that you know, you're abandoned Asia altogether.

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<v Speaker 1>I think, you know, medium term, Asia is still a

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<v Speaker 1>good story. But you know, in the short term, at

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<v Speaker 1>least UH, those hid means will play out. I promised

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<v Speaker 1>to go somewhere other than China in the segment of

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<v Speaker 1>the conversation, but I've got to talk to you about

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<v Speaker 1>what the PBOC has just done. They have reduced the

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<v Speaker 1>rate on the one year mL to UH to seventy

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<v Speaker 1>five from two eighty five, so a cut of ten

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<v Speaker 1>basis points. What does this tell you, Well, it tells

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<v Speaker 1>you that you know, they're ready to provide some degree

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<v Speaker 1>of support to the economy. They recognize the fact that

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<v Speaker 1>the economy is UH languishing, but they're not prepared to

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<v Speaker 1>do UH. As I said earlier, the big bang approach.

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<v Speaker 1>I mean, China is moving away from that approach. It's

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<v Speaker 1>a bit more selective, a bit more gradual. Uh. You know,

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<v Speaker 1>you're fighting a lot of hit wins, global hit wins,

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<v Speaker 1>especially the strong, the very aggresive federal reserves. So you know,

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<v Speaker 1>I think the PBUC saving it's a bullets probably for

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<v Speaker 1>later on another day. I mean, but nevertheless, you know,

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<v Speaker 1>the signal you're sending to the market is that you

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<v Speaker 1>know they're prepared to step into some extent and do

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<v Speaker 1>what they can. How attractive is the Japan story for you?

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<v Speaker 1>We've got the neck to to five on track to

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<v Speaker 1>erase a year to day laws, and we're looking ahead

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<v Speaker 1>for a rebound in the economy too with those second

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<v Speaker 1>quarter GDP figures. Well, you know Japan, Yes, you're right,

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<v Speaker 1>Japan is an interesting market. I mean, the yen's weekend

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<v Speaker 1>now you're starting to strengthen once again. You know, inflation

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<v Speaker 1>in Japan appears to be coming back. Um, we've got

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<v Speaker 1>a neutral reading in Japan. We've got neutle reating on

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<v Speaker 1>US Japan and age X Japan. So we don't see

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<v Speaker 1>anything exceptional in JEPEND at this junction. But as you

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<v Speaker 1>as you highlight that, I mean, the economy is rebounding

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<v Speaker 1>quite nicely. Uh. And you know, the Japanese economy is

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<v Speaker 1>not open yet. I mean many of the economies have

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<v Speaker 1>opened up. Jepend is not opened up. And when they

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<v Speaker 1>do open up, they'll get that, you know, the pent

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<v Speaker 1>up demands stimulus for the economy. Uh. You see tories

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<v Speaker 1>flows coming in greater travel within Japan, most spending taking place,

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<v Speaker 1>and that could be good for the Japanese economy down

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<v Speaker 1>the route. Yeah, and the guys on our m Live

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<v Speaker 1>blog we're pointing out that as part of this second

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<v Speaker 1>quarter GDP report, it is preliminary, we get that, but

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<v Speaker 1>the deflator for household consumption excluding rent was up one

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<v Speaker 1>point three Is it too soon to say maybe that

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<v Speaker 1>in the consumer sector you're seeing evidence of inflation and

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<v Speaker 1>maybe maybe we're close to some kind of inflection point

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<v Speaker 1>where we're on the other side of deflationary pressures. Uh,

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<v Speaker 1>possible that. I mean, you're not seeing any major inflation

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<v Speaker 1>in Japan yet. I mean, inflation is picking up, as

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<v Speaker 1>you said, consumer spending is picking up. Inflation is also

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<v Speaker 1>picking up Japan. Is you know, not isolated case. But

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<v Speaker 1>but you know, it hasn't gone up enough of the

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<v Speaker 1>vield to say that, look we need to start tightening

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<v Speaker 1>and uh. But but it's a good sign. I mean,

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<v Speaker 1>it seems to be showing some turnaround the corner. And uh,

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<v Speaker 1>I think that's one reason why investors and you know,

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<v Speaker 1>markets have turned slightly more positive in Japanese economy as well,

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<v Speaker 1>and the stock markets of course, just a very quick

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<v Speaker 1>word VERTI on a Siena. I mean we're looking at

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<v Speaker 1>recovery and Thailand really lifting the bars and getting back

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<v Speaker 1>to those tourist levels too. Is that still on attractive play? Uh, well,

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<v Speaker 1>you know, Thailand is not one of our topics. But nevertheless,

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<v Speaker 1>you know again the Thaie economy is getting the stimulus

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<v Speaker 1>from tourism. One of the biggest similars you get from

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<v Speaker 1>you know, you get from COVID nineteen reopening is tourist

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<v Speaker 1>flow spicking up. And Thailand is a major tourist attraction.

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<v Speaker 1>So yes, you know, something to keep in mind. But China,

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<v Speaker 1>Singapore and Hong Kong or topics for ye. All right, Fas,

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<v Speaker 1>it always a pleasure, Thank you so much. Fasumnan executive

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<v Speaker 1>director of Investment Strategy at O C b C Bank

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<v Speaker 1>Wealth Management. Here in Singapore. This is Bloomberg