WEBVTT - Kathleen Hays on Jackson Hole (Audio)

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<v Speaker 1>Let's get to our guests now to Ha Choo is

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<v Speaker 1>head of Fixed Income Asia, joining us from Rebecca here

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<v Speaker 1>in Singapore to talk all things China and specifically the

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<v Speaker 1>bond market. Wanted to get your broader thoughts though on

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<v Speaker 1>the overall economy as we're continuing to face so many

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<v Speaker 1>headwinds and now we're seeing the Chinese province of situation

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<v Speaker 1>extending these industrial power cuts to some users. This really

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<v Speaker 1>lies into the effect of what more stimulus we can

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<v Speaker 1>expect to see from authorities today it's the LPR. But

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<v Speaker 1>what's your view in terms of further stimulus we can

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<v Speaker 1>see here? Yes, I think we we think that is

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<v Speaker 1>going to have to look beyond monetary policies and in

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<v Speaker 1>ten vis this point, I don't think is going to

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<v Speaker 1>be significant given that we've seen most of the data.

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<v Speaker 1>Is thing. Actually, demand for credit isn't the problem. Uh,

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<v Speaker 1>you know, there isn't any command that much credit. What

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<v Speaker 1>you're saying, the cost of credit in the problem. So

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<v Speaker 1>what we're looking for is for them to go beyond

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<v Speaker 1>this and actually start look giving us some more fiscal stimulus,

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<v Speaker 1>preferably from the central government. And what would that look like?

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<v Speaker 1>What would you expect there. I think we'd like obviously

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<v Speaker 1>more infrastructive men. We'd like much more concerted, coordinated effort

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<v Speaker 1>to help them, you know, property sector. I know that

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<v Speaker 1>there's lots that have been announced, but I think we

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<v Speaker 1>can definitely see that with from the data ware thing

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<v Speaker 1>is that that that's not really feeling through, and you know,

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<v Speaker 1>on the physical market has to turn around before you

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<v Speaker 1>can get much more confidence that the economy and is

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<v Speaker 1>on a more steady foot Ed was talking there in

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<v Speaker 1>the news about Singapore relaxing some of the COVID restrictions,

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<v Speaker 1>which will pretty much bring Singapore back to pre pandemic

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<v Speaker 1>levels then, and that has been a very vast turnaround

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<v Speaker 1>in the last year when we still had borders shop

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<v Speaker 1>this time last year. When do you see China making

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<v Speaker 1>such an incredible pivot And how is that going to

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<v Speaker 1>change the dial here in terms of opening up the

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<v Speaker 1>economy and creating broader economic growth when we're so far

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<v Speaker 1>from that five and a half percent target. Yes, I

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<v Speaker 1>think it's going to have to depend a lot on

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<v Speaker 1>if they can get a vaccination a bit better, and

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<v Speaker 1>of course maybe potentially some some drugs that would be helped,

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<v Speaker 1>you know, helpful for for the COVID situation for those

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<v Speaker 1>who have not been vaccinated. So I think, I mean,

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<v Speaker 1>what I'm hearing is that that that could be on

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<v Speaker 1>the cars for early part of next year, obviously after

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<v Speaker 1>the national part of progress as well. So I think

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<v Speaker 1>that could be what we're looking at to see where

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<v Speaker 1>things could really turn around for COVID policy. UM And

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<v Speaker 1>I think sometimes when we're feeling very low about China,

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<v Speaker 1>remind myself that only Chinuary this year, I was feeling

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<v Speaker 1>very depressed about Singapore and thinking, are we're ab going

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<v Speaker 1>to to resume normality? And what we do see is

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<v Speaker 1>that when we do resume normality, it happens very quick

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<v Speaker 1>and very fast. And I think that's that's what we

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<v Speaker 1>have to kind of hold onto the back, that once

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<v Speaker 1>things are very place, we can cut around very quickly,

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<v Speaker 1>very fast turn around here in in Singapore. But when

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<v Speaker 1>it comes to the overall Chinese economic outlook, what what

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<v Speaker 1>is your forecast there in terms of growth? I mean

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<v Speaker 1>the five and the cent target has certainly been ditched,

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<v Speaker 1>but you more in that band of say three point

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<v Speaker 1>nine four point five percent? What's your outlook for China

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<v Speaker 1>much closer to the three uh handle than than a

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<v Speaker 1>four handle, given you know, everything we've seen, and given

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<v Speaker 1>the fact that the some of these things that beyond

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<v Speaker 1>their control as well, particularly you mentioned, should try on

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<v Speaker 1>the climate issue. I think we're beginning, I mean to

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<v Speaker 1>look at climate um not only UM here in China,

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<v Speaker 1>but even you know, when we look across your you know,

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<v Speaker 1>it is a big factor, one that I think could

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<v Speaker 1>actually be much have a much more longer impact on inflation.

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<v Speaker 1>When we think about particular region, put inflations will be

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<v Speaker 1>very very key, and some of these climates that we're seeing,

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<v Speaker 1>you know, could have quite a major impact in that

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<v Speaker 1>particularly you know, as to say, the harvest season now,

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<v Speaker 1>but this feeds into next year and the post the

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<v Speaker 1>gas prices and fertilizers. So again, climate inflation still very

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<v Speaker 1>much on the radar for this region. All right, Let's

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<v Speaker 1>talk about the China bond market. When you look at

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<v Speaker 1>shares in China, they're down about six percent over the

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<v Speaker 1>past month, whereas an MSCI gauge tracking the rest of

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<v Speaker 1>developing markets is up about seven percent. And it's similar

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<v Speaker 1>in the bond market, with Chinese debt up just about

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<v Speaker 1>one percent compared with a four percent return for emerging markets.

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<v Speaker 1>When does that I guess divergence change. Um. I think

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<v Speaker 1>we need to see the physical market a particular property

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<v Speaker 1>in China to turn around, and that's going to be

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<v Speaker 1>very difficult. As we mentioned talked a little bit earlier

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<v Speaker 1>bout COVID policy. Right, so you can put similars and

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<v Speaker 1>stuff in place, but you know, until people have confidence

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<v Speaker 1>in uh that in the economy and the physical market

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<v Speaker 1>is better, I think that's hard. That's the first step

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<v Speaker 1>that that needs to get taken. And then obviously a

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<v Speaker 1>number of steps that can be done in policy. Again,

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<v Speaker 1>some fiscal stimulus I mentioned, as well as much more

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<v Speaker 1>coordinated policy around funding. These all those things that would

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<v Speaker 1>need to help, you know, give that sector a much

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<v Speaker 1>firm of footing, and then of course hopefully few through

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<v Speaker 1>to the rest of the economy, but none are quite there. Yeah,

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<v Speaker 1>A lot of it is about the property sector. As

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<v Speaker 1>you say, when do you see a potential peak in defaults?

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<v Speaker 1>And I guess the worst behind us in the property sector, um,

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<v Speaker 1>I mean the faults are pretty you know, they're high already.

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<v Speaker 1>Hopefully we are definitely at the bottom, if you know,

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<v Speaker 1>if not, and certainly for the policy makers that that

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<v Speaker 1>is their direction is definitely to make sure that you know,

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<v Speaker 1>we don't decelerate anymore and hopefully turn around. But I said,

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<v Speaker 1>what can determine that is going to be the physical market,

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<v Speaker 1>and that is still very cloudy at this moment um,

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<v Speaker 1>not very clear. We're looking to how we're looking ahead

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<v Speaker 1>to Jackson Hole two and what we're going to hear

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<v Speaker 1>from the fair and how that plays into the rest

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<v Speaker 1>of the globe. I guess you're talking about looking for

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<v Speaker 1>some opportunity in in some other e M s, but

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<v Speaker 1>also in Indian high yield. Tell us what you like there, Yeah,

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<v Speaker 1>but I mean I think we I mean, then homes

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<v Speaker 1>is holding up quite well. Uh, Commodity, I mean, certainly

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<v Speaker 1>with oil a bit lower, that's that's helpful for that.

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<v Speaker 1>But I think just structurally some of the companies there

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<v Speaker 1>are just kind of quite well positioned. There's particularly that market,

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<v Speaker 1>some of the still companies that were looking at there,

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<v Speaker 1>and and a lot of the renewables you know, again

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<v Speaker 1>very structurally a good strong demand and they're feeding into

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<v Speaker 1>the whole idea that climate mitigation. Climate risk is going

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<v Speaker 1>to be something that you know, it's big on investor's mind.

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<v Speaker 1>If we do see the FAIR succeed in clamping down

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<v Speaker 1>on inflation without causing a recession. What kind of areas

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<v Speaker 1>of Asian credit do you see is benefiting here? So

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<v Speaker 1>I'd say most of the most of Asia credit would

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<v Speaker 1>be actually a big met The i G obviously UM

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<v Speaker 1>segment doing very well. Most of the companies they're including

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<v Speaker 1>Chinese company actually even benefit from that because UM you're

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<v Speaker 1>dislike the slowing of the economy, and in terms of

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<v Speaker 1>the most investment grade the fundamentals are so the the

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<v Speaker 1>companies themselves are actually quite quite strong, So that could

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<v Speaker 1>that would also benefit, and say within high use segments

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<v Speaker 1>of it away from you know, commodity names in Indonesia

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<v Speaker 1>and India all benefiting. The only area that's a very

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<v Speaker 1>destocratic would be Chinese property and that's going to need um,

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<v Speaker 1>you know, very much more Chinese policy makers to work

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<v Speaker 1>on that side. And are you confident that the FAIR

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<v Speaker 1>is going to achieve its target or are we facing

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<v Speaker 1>potentially a big deep procession. I actually I think that

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<v Speaker 1>they are doing the right things. Certainly, they're giving the

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<v Speaker 1>market the very strong signal that they do not want

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<v Speaker 1>inflation UM expectations to be embedded. And if that caused

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<v Speaker 1>the market to bobble. It's probably going to be better

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<v Speaker 1>than it would be if they let the inflation out

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<v Speaker 1>of control. So I think of the two evils, I

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<v Speaker 1>think the tackling inflation is probably going to be much

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<v Speaker 1>more better for the market in the long run, and

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<v Speaker 1>certainly need to make sure that we don't get embedded two.

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<v Speaker 1>Has been great to have you on. Thank you so

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<v Speaker 1>much for your insights. Too hard Out is head of

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<v Speaker 1>Fixed Income Asia, Rebecca joining us from Singapore here on

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<v Speaker 1>Bloomberg Daybreak Asia