1 00:00:06,019 --> 00:00:09,079 Speaker 1: Hello, this is uh Copy Time, a podcast series on 2 00:00:09,090 --> 00:00:12,659 Speaker 1: Markets and Economies from DVS Group Research. I'm Turbe, chief economist, 3 00:00:12,670 --> 00:00:15,560 Speaker 1: welcoming you to our 132nd episode. 4 00:00:16,159 --> 00:00:19,559 Speaker 1: Today we have with us Dr Prakash Kanan, chief economist 5 00:00:19,569 --> 00:00:22,950 Speaker 1: and director of the Economics and Investment Strategy Department at 6 00:00:22,959 --> 00:00:26,069 Speaker 1: G IC. One of two key sovereign wealth funds of 7 00:00:26,079 --> 00:00:29,329 Speaker 1: the government of Singapore. Prakash is responsible for developing the 8 00:00:29,340 --> 00:00:32,549 Speaker 1: top down view on the investment environment as well as 9 00:00:32,560 --> 00:00:36,458 Speaker 1: the asset allocation strategy for G IC. Prior to joining 10 00:00:36,470 --> 00:00:40,479 Speaker 1: G IC in 2012, uh Prakash worked with the International 11 00:00:40,490 --> 00:00:41,220 Speaker 1: Monetary Fund. 12 00:00:41,619 --> 00:00:44,490 Speaker 1: I know him from those days, the Central Bank of Malaysia, 13 00:00:44,880 --> 00:00:48,700 Speaker 1: Bangarra and GTES Pension Fund, Prakash, Shaan. Welcome back to 14 00:00:48,709 --> 00:00:50,400 Speaker 1: Copy time. It's been a while. 15 00:00:51,380 --> 00:00:54,080 Speaker 2: Thanks J Good to be back. I can't believe it's 16 00:00:54,090 --> 00:00:54,990 Speaker 2: been four years, 17 00:00:55,330 --> 00:00:58,549 Speaker 1: August 2020. These were the early days of cooking time 18 00:00:58,580 --> 00:01:01,430 Speaker 1: when you were kind enough to join me. Uh Lots 19 00:01:01,439 --> 00:01:05,119 Speaker 1: has happened since then. Prakash and Macro remains exciting 20 00:01:05,410 --> 00:01:08,529 Speaker 2: and no, first. Congratulations. Uh I think the podcast has 21 00:01:08,540 --> 00:01:12,519 Speaker 2: definitely gone from strength to strength. Uh I think it was, yeah, 22 00:01:12,529 --> 00:01:15,768 Speaker 2: it was hit what episode? 24? I believe I was now. 23 00:01:15,830 --> 00:01:19,199 Speaker 2: It's 100 and change. So, congratulations. 24 00:01:19,690 --> 00:01:22,599 Speaker 1: Uh II, I have been able to run it because 25 00:01:22,610 --> 00:01:24,809 Speaker 1: I've had, you know, friends and colleagues like you come 26 00:01:24,819 --> 00:01:27,540 Speaker 1: and support it. So again, Prakash, thanks for coming back today. 27 00:01:27,870 --> 00:01:30,209 Speaker 1: And like I said, back in 2020 I think most 28 00:01:30,220 --> 00:01:33,690 Speaker 1: of the podcast was about dealing with pandemic economics. We 29 00:01:33,699 --> 00:01:37,430 Speaker 1: can hopefully put that aside, not if not even behind 30 00:01:37,440 --> 00:01:38,429 Speaker 1: for the time being. 31 00:01:38,699 --> 00:01:42,550 Speaker 1: Uh Prakash. Uh Let's start with some macro discussion. And 32 00:01:42,559 --> 00:01:44,739 Speaker 1: then I do want to hear about your views on 33 00:01:44,750 --> 00:01:48,199 Speaker 1: asset allocation in this environment, but to set the trajectory, 34 00:01:48,279 --> 00:01:51,239 Speaker 1: uh let's start with the US. Uh lots of chat 35 00:01:51,250 --> 00:01:57,610 Speaker 1: about Jerome Powell's Jacksonville speech. September is probably most likely the, 36 00:01:57,620 --> 00:01:59,839 Speaker 1: you know, beginning of the rate cut in this cycle 37 00:01:59,949 --> 00:02:03,559 Speaker 1: and people are trying to price in the 2024 2025 scenario. 38 00:02:03,610 --> 00:02:04,480 Speaker 1: Your thoughts. 39 00:02:05,860 --> 00:02:07,879 Speaker 2: No, thanks man. And look, I think it's a great 40 00:02:07,889 --> 00:02:10,179 Speaker 2: place to start. Um you know, for better or for worse. 41 00:02:10,190 --> 00:02:13,000 Speaker 2: I think uh what the fed does really matters, not 42 00:02:13,008 --> 00:02:14,220 Speaker 2: just for the US, but I think for the rest 43 00:02:14,229 --> 00:02:17,119 Speaker 2: of the world. Um I think, you know, really thinking 44 00:02:17,130 --> 00:02:19,880 Speaker 2: about the question, we, we have to take both 45 00:02:20,309 --> 00:02:23,490 Speaker 2: uh the expected path of rate but also the outlook 46 00:02:23,500 --> 00:02:27,309 Speaker 2: for the economy uh and inflation uh together, you know, 47 00:02:27,320 --> 00:02:30,399 Speaker 2: sometimes you have these discussions where people just focus on 48 00:02:30,410 --> 00:02:32,729 Speaker 2: the rates but, but ignore actually what's happening in the 49 00:02:32,740 --> 00:02:36,199 Speaker 2: uh in the macro context. Uh So if I start 50 00:02:36,210 --> 00:02:37,889 Speaker 2: by looking actually at what's price, then 51 00:02:38,199 --> 00:02:42,538 Speaker 2: you have about 220 basis points of cuts between now 52 00:02:42,550 --> 00:02:45,649 Speaker 2: and the end of 2025 which is, you know, roughly 53 00:02:45,679 --> 00:02:49,970 Speaker 2: 100 for this year and about 100 and 20 for 54 00:02:49,979 --> 00:02:53,619 Speaker 2: next year. Now, you rarely see this kind of extent 55 00:02:53,630 --> 00:02:55,300 Speaker 2: of cuts outside of a recession. 56 00:02:55,940 --> 00:02:59,360 Speaker 2: So in that sense, uh it really is a very 57 00:02:59,369 --> 00:03:03,940 Speaker 2: strong uh kind of a degree of monetary policy kind 58 00:03:03,949 --> 00:03:07,179 Speaker 2: of easing that's being priced into the market. So when 59 00:03:07,190 --> 00:03:09,119 Speaker 2: I look at that and then I try and square 60 00:03:09,130 --> 00:03:12,679 Speaker 2: it with my central view uh of the of the 61 00:03:12,690 --> 00:03:15,800 Speaker 2: economy uh that the amount of cuts being priced in 62 00:03:15,809 --> 00:03:20,050 Speaker 2: seems a little excessive. Uh Our baseline is still for 63 00:03:20,059 --> 00:03:21,660 Speaker 2: a uh a soft landing. 64 00:03:22,008 --> 00:03:25,490 Speaker 2: Uh but importantly, with a slightly sticky path for uh 65 00:03:25,500 --> 00:03:29,589 Speaker 2: for inflation uh such that it would likely end 2025 66 00:03:29,600 --> 00:03:31,429 Speaker 2: still with a, with a two handle. 67 00:03:32,050 --> 00:03:35,660 Speaker 2: Um And so if you take that into context, uh 68 00:03:35,669 --> 00:03:38,690 Speaker 2: you know, we think likely that um you're not gonna 69 00:03:38,699 --> 00:03:42,070 Speaker 2: get this amount of uh uh cut um that the 70 00:03:42,080 --> 00:03:44,509 Speaker 2: market is currently pricing it. But of course, you know, 71 00:03:44,520 --> 00:03:47,639 Speaker 2: that's the central scenario, the the alternative scenarios around it. 72 00:03:48,009 --> 00:03:53,029 Speaker 2: Um We do actually place a relatively high uh probability 73 00:03:53,039 --> 00:03:57,029 Speaker 2: and a recession scenario about 30 to 35%. Uh This is, 74 00:03:57,039 --> 00:04:00,100 Speaker 2: you know, about twice the kind of unconditional mean. 75 00:04:00,429 --> 00:04:02,210 Speaker 2: Uh And a large part of that is just based 76 00:04:02,220 --> 00:04:04,800 Speaker 2: on the, the dynamics that you're seeing in the, uh, 77 00:04:04,809 --> 00:04:07,970 Speaker 2: in the labor market. Uh Now if you do get 78 00:04:07,979 --> 00:04:10,570 Speaker 2: that scenario, then, then I do think actually the fed 79 00:04:10,580 --> 00:04:13,050 Speaker 2: has a lot of ammunition. Uh, and I think they 80 00:04:13,059 --> 00:04:16,290 Speaker 2: will actually act, uh in a fairly aggressive manner. 81 00:04:16,928 --> 00:04:19,309 Speaker 2: Uh The other scenario is of course, that, that actually 82 00:04:19,320 --> 00:04:21,329 Speaker 2: we are wrong on inflation and actually it comes down 83 00:04:21,339 --> 00:04:23,390 Speaker 2: a lot faster. Uh that I think is a bit 84 00:04:23,399 --> 00:04:25,779 Speaker 2: more consistent with what the market is, is pricing in, 85 00:04:25,790 --> 00:04:27,899 Speaker 2: not too bad, not too bad on growth, but actually 86 00:04:27,910 --> 00:04:29,988 Speaker 2: very fast disinflation process. 87 00:04:30,678 --> 00:04:31,829 Speaker 2: And of course, you know, we have to talk about 88 00:04:31,839 --> 00:04:34,820 Speaker 2: the elephant in the room, which is the, the US election. 89 00:04:35,678 --> 00:04:39,290 Speaker 2: Um you know, depending on how that pans out. Um 90 00:04:39,299 --> 00:04:42,419 Speaker 2: You know, I think there is a scenario where the 91 00:04:42,428 --> 00:04:45,169 Speaker 2: FED may just want to pause and wait until you 92 00:04:45,178 --> 00:04:50,929 Speaker 2: get some clarity on uh on policies because across both candidates, 93 00:04:51,238 --> 00:04:53,649 Speaker 2: you know, a lot of the discussion has been 94 00:04:53,928 --> 00:04:56,850 Speaker 2: uh you know, on, on kind of broader issues, let's 95 00:04:56,859 --> 00:05:00,829 Speaker 2: say immigration, uh uh crime, the economy, et cetera, but, 96 00:05:00,839 --> 00:05:03,279 Speaker 2: but very little kind of clarity in terms of what 97 00:05:03,290 --> 00:05:07,039 Speaker 2: exactly uh type of policies they would uh deliver. Uh 98 00:05:07,049 --> 00:05:09,488 Speaker 2: So that again, I think would, would probably lead to 99 00:05:09,500 --> 00:05:11,570 Speaker 2: a bit more caution, I think from the fed, uh, 100 00:05:11,579 --> 00:05:14,170 Speaker 2: relative to what, uh, what's priced in. 101 00:05:15,640 --> 00:05:18,790 Speaker 1: Right. And I, I think I am very much in 102 00:05:18,799 --> 00:05:20,820 Speaker 1: line with you that, to 103 00:05:21,970 --> 00:05:25,070 Speaker 1: prognosticate about uh, recession, just, just around the corner sounds 104 00:05:25,079 --> 00:05:27,450 Speaker 1: really a bit far fetched to me, uh, in the 105 00:05:27,459 --> 00:05:30,820 Speaker 1: past for, gosh, I mean, we've only had proper recessions 106 00:05:30,829 --> 00:05:33,500 Speaker 1: with proper shocks which are, you know, by definition, not 107 00:05:33,510 --> 00:05:36,959 Speaker 1: really predictable like the pandemic or the financial stability issues 108 00:05:36,970 --> 00:05:40,119 Speaker 1: are on 0809 and the market can't predict that. So 109 00:05:40,130 --> 00:05:42,579 Speaker 1: in it, if it's pricing it, in that narrative, in 110 00:05:42,589 --> 00:05:44,829 Speaker 1: my view doesn't carry a lot of weight. Whereas to 111 00:05:44,839 --> 00:05:47,640 Speaker 1: your point that if inflation starts surprising on the downside, 112 00:05:47,869 --> 00:05:50,510 Speaker 1: uh then just the fact that, you know, we don't 113 00:05:50,519 --> 00:05:53,470 Speaker 1: need to have such high real rates makes sense. Uh 114 00:05:53,480 --> 00:05:57,089 Speaker 1: But still, it has to be combined with some degree 115 00:05:57,100 --> 00:05:59,730 Speaker 1: of weakness in the labor market, what you say because 116 00:05:59,738 --> 00:06:02,899 Speaker 1: if labor market does not weaken materially and we rule 117 00:06:02,910 --> 00:06:07,329 Speaker 1: out of recession, then sustained cuts could lead to undue 118 00:06:07,750 --> 00:06:11,399 Speaker 1: uh you know, softening of financial conditions and create financial 119 00:06:11,410 --> 00:06:13,970 Speaker 1: stability issues on the other end, like a melt up scenario. 120 00:06:15,178 --> 00:06:17,808 Speaker 2: No, I think, I think, I think that's, that's absolutely right. 121 00:06:17,820 --> 00:06:20,640 Speaker 2: Um You know, the, the one thing unique about the 122 00:06:20,649 --> 00:06:22,890 Speaker 2: US is that there actually is a bit of an 123 00:06:22,899 --> 00:06:27,149 Speaker 2: asymmetry with regards to uh the sensitivity to interest rates, 124 00:06:27,339 --> 00:06:30,619 Speaker 2: uh mostly because a lot of uh economic entities in 125 00:06:30,630 --> 00:06:34,640 Speaker 2: the US actually have optionality when it comes to uh 126 00:06:34,649 --> 00:06:38,678 Speaker 2: uh refinancing, right? So, so as interest rates go up, 127 00:06:39,170 --> 00:06:42,579 Speaker 2: um you know, as you know, a lot of households 128 00:06:42,589 --> 00:06:45,630 Speaker 2: are on kind of fixed rate mortgages which have very 129 00:06:45,640 --> 00:06:48,029 Speaker 2: long duration relative to other parts of the world. Uh 130 00:06:48,049 --> 00:06:51,170 Speaker 2: Corporates actually also have turned out their debt such that, 131 00:06:51,178 --> 00:06:54,029 Speaker 2: that pass through of higher interest rates to balance sheets 132 00:06:54,040 --> 00:06:56,630 Speaker 2: is a, is a lot slower. But if you invert 133 00:06:56,640 --> 00:06:57,350 Speaker 2: the process, 134 00:06:57,820 --> 00:07:01,820 Speaker 2: um actually, then you suddenly could get the uh opportunity 135 00:07:01,829 --> 00:07:06,119 Speaker 2: for households to refinance uh uh much faster uh households 136 00:07:06,130 --> 00:07:09,250 Speaker 2: to even take uh potentially uh home equity uh uh 137 00:07:09,260 --> 00:07:12,720 Speaker 2: uh withdrawals. So, so you could get actually an, an 138 00:07:12,730 --> 00:07:17,078 Speaker 2: asymmetric response to cuts, um which I think going to, 139 00:07:17,089 --> 00:07:19,209 Speaker 2: your point would lead to, I think to, to a 140 00:07:19,220 --> 00:07:22,679 Speaker 2: bit of uh uh uh uh a melt up scenario. And, 141 00:07:22,690 --> 00:07:25,480 Speaker 2: and I think here, you know, the, the, the risk 142 00:07:25,489 --> 00:07:26,399 Speaker 2: is that 143 00:07:26,859 --> 00:07:31,109 Speaker 2: um there's perhaps too much emphasis I think placed on, 144 00:07:31,559 --> 00:07:34,489 Speaker 2: uh you know, this concept of a neutral uh uh 145 00:07:34,500 --> 00:07:37,559 Speaker 2: interest rate of this house car, uh which is, you know, as, 146 00:07:37,570 --> 00:07:41,940 Speaker 2: you know, uh unobservable. Um And so, if there is 147 00:07:41,950 --> 00:07:46,269 Speaker 2: a belief that uh policy is quote unquote tight, just 148 00:07:46,279 --> 00:07:50,220 Speaker 2: because it's relative to this um conceptual uh uh our 149 00:07:50,359 --> 00:07:50,899 Speaker 2: star 150 00:07:51,200 --> 00:07:53,260 Speaker 2: that, that pressure to cut may actually be a lot 151 00:07:53,269 --> 00:07:57,130 Speaker 2: more than uh uh what, what uh uh is actually 152 00:07:57,140 --> 00:07:59,929 Speaker 2: necessary for, for the economy. So, so, yeah, I agree 153 00:07:59,940 --> 00:08:01,549 Speaker 2: with you. I think that, that, that there could be 154 00:08:01,559 --> 00:08:05,369 Speaker 2: that scenario, uh where, you know, the, the fed kind 155 00:08:05,380 --> 00:08:10,220 Speaker 2: of in a way underestimates, um uh how much actually 156 00:08:10,230 --> 00:08:13,500 Speaker 2: our car has uh, has increased over the past few years. 157 00:08:13,890 --> 00:08:16,309 Speaker 1: That's right. I want to talk a little bit about 158 00:08:16,320 --> 00:08:20,149 Speaker 1: the treasury. Uh I've seen some articles lately talking about 159 00:08:20,160 --> 00:08:23,119 Speaker 1: the fact that the treasury focus on issuing bonds at 160 00:08:23,130 --> 00:08:25,470 Speaker 1: the short end of the spectrum, as well as the 161 00:08:25,480 --> 00:08:28,779 Speaker 1: long end constitute some sort of a QE which has 162 00:08:28,790 --> 00:08:31,619 Speaker 1: sort of offset the feds qt. Do you, do you 163 00:08:31,630 --> 00:08:32,669 Speaker 1: have any view on this issue? 164 00:08:34,500 --> 00:08:37,530 Speaker 2: Yeah. You know, I mean, um, I, I think um 165 00:08:37,659 --> 00:08:38,299 Speaker 2: uh 166 00:08:39,070 --> 00:08:41,909 Speaker 2: the challenge with the, with the Treasury is that they 167 00:08:41,919 --> 00:08:43,640 Speaker 2: actually have to do a lot of uh a lot 168 00:08:43,650 --> 00:08:47,289 Speaker 2: of issuance. Um And, you know, that's, that's the function 169 00:08:47,299 --> 00:08:50,630 Speaker 2: of uh the large amount of deficits that, that actually 170 00:08:50,640 --> 00:08:51,289 Speaker 2: is being done. 171 00:08:51,820 --> 00:08:54,880 Speaker 2: Um, you know, we have kind of reached a tricky 172 00:08:54,890 --> 00:08:58,719 Speaker 2: position where, you know, kind of treasury auction announcements have 173 00:08:58,729 --> 00:09:02,239 Speaker 2: been uh, almost seem to be like market moving uh 174 00:09:02,250 --> 00:09:06,650 Speaker 2: uh events. Um I think, uh I think that there 175 00:09:06,659 --> 00:09:08,460 Speaker 2: will be a time where they will need to issue 176 00:09:08,469 --> 00:09:09,439 Speaker 2: a lot more duration. 177 00:09:09,890 --> 00:09:12,260 Speaker 2: Um, in a sense, they are kind of getting up 178 00:09:12,270 --> 00:09:16,229 Speaker 2: to the 20 25% amount of uh uh kind of 179 00:09:16,239 --> 00:09:20,030 Speaker 2: bills relative to overall uh uh issuance that I think 180 00:09:20,039 --> 00:09:23,549 Speaker 2: uh is roughly their, their sweet spot. Um Having said that, 181 00:09:23,559 --> 00:09:26,079 Speaker 2: you know, it has actually helped uh the balance of 182 00:09:26,090 --> 00:09:28,468 Speaker 2: liquidity uh uh in the market. 183 00:09:28,989 --> 00:09:32,090 Speaker 2: Um because, you know, by, by issuing much on the 184 00:09:32,099 --> 00:09:35,210 Speaker 2: shorter end, actually, they have in a way, uh uh 185 00:09:35,219 --> 00:09:38,270 Speaker 2: as you were saying, offset the amount of uh qt that, 186 00:09:38,280 --> 00:09:41,299 Speaker 2: that is uh has been going on. Uh our own 187 00:09:41,309 --> 00:09:44,270 Speaker 2: estimate is that um as you know, QT is already 188 00:09:44,280 --> 00:09:48,179 Speaker 2: uh uh reduced in, in, in magnitude. Um But we 189 00:09:48,190 --> 00:09:50,750 Speaker 2: think that runs probably until about the middle of next year. 190 00:09:51,049 --> 00:09:53,710 Speaker 2: Uh and then that too will, will eventually stop. And 191 00:09:53,719 --> 00:09:56,080 Speaker 2: perhaps at that time, the fed can actually extend the 192 00:09:56,090 --> 00:09:58,190 Speaker 2: duration of uh of their borrowing, 193 00:09:59,710 --> 00:10:02,209 Speaker 1: right? I, I also think that some of the stuff 194 00:10:02,219 --> 00:10:04,409 Speaker 1: that the treasury is doing as much as the market 195 00:10:04,419 --> 00:10:06,950 Speaker 1: would like to follow minute by minute. I think it 196 00:10:06,960 --> 00:10:10,440 Speaker 1: is fairly predictable, it is fairly stable and I think 197 00:10:10,450 --> 00:10:13,179 Speaker 1: they're focusing on the short end of the curve does 198 00:10:13,190 --> 00:10:16,799 Speaker 1: not reveal any desire to sort of offset the fed's moves. 199 00:10:16,809 --> 00:10:18,689 Speaker 1: And to your point, we also estimate that at the 200 00:10:18,700 --> 00:10:20,729 Speaker 1: current pace by the middle of next year might be 201 00:10:20,739 --> 00:10:21,369 Speaker 1: the longest. 202 00:10:21,679 --> 00:10:25,280 Speaker 1: The fed can go a final word on global liquidity 203 00:10:25,289 --> 00:10:28,979 Speaker 1: uh precaution, not just uh fed's operations, but the things 204 00:10:28,989 --> 00:10:31,968 Speaker 1: that are happening at the Bank of England P BC 205 00:10:32,000 --> 00:10:35,369 Speaker 1: Bank of Japan. And uh one concern that I hear 206 00:10:35,380 --> 00:10:38,250 Speaker 1: going into 2025 is that the FED may be doing 207 00:10:38,260 --> 00:10:40,969 Speaker 1: its thing, but there are other things happening elsewhere which 208 00:10:40,979 --> 00:10:44,929 Speaker 1: might constitute somewhat of a liquidity crunch uh for 209 00:10:45,669 --> 00:10:50,349 Speaker 1: banks and financial institutions. Uh and, and the private sector 210 00:10:50,359 --> 00:10:53,789 Speaker 1: in general. Uh your your sense, do you have any 211 00:10:53,799 --> 00:10:55,609 Speaker 1: concern with respect to liquidity? 212 00:10:56,869 --> 00:10:58,630 Speaker 2: Yeah, you know, I think uh I mean, we looked 213 00:10:58,640 --> 00:11:01,229 Speaker 2: at this a bit and uh my sense is that 214 00:11:01,239 --> 00:11:07,280 Speaker 2: uh the both awareness by um uh central banks on 215 00:11:07,289 --> 00:11:10,650 Speaker 2: this issue as well as actually the, the existence of 216 00:11:10,659 --> 00:11:11,489 Speaker 2: new tools 217 00:11:11,729 --> 00:11:15,179 Speaker 2: uh I think do actually limit the uh the likelihood of, 218 00:11:15,190 --> 00:11:19,830 Speaker 2: of any kind of uh uh sharp liquidity uh shock. 219 00:11:19,950 --> 00:11:22,699 Speaker 2: I think the standing repo facility, uh the fed of course, 220 00:11:22,710 --> 00:11:26,030 Speaker 2: is something new um relative to the, the last uh 221 00:11:26,039 --> 00:11:29,770 Speaker 2: uh kind of repo uh scam. And, and I think 222 00:11:29,780 --> 00:11:32,380 Speaker 2: this actually does uh will help uh to be a 223 00:11:32,390 --> 00:11:35,190 Speaker 2: little bit of a, of an offset. And plus, you know, 224 00:11:35,200 --> 00:11:36,109 Speaker 2: I think um 225 00:11:36,390 --> 00:11:40,179 Speaker 2: uh there is a lot more kind of discussion with 226 00:11:40,190 --> 00:11:45,650 Speaker 2: uh um with uh kind of market participants. Um There 227 00:11:45,659 --> 00:11:49,409 Speaker 2: is actually also, you know, uh Laurie Logan, who's now 228 00:11:49,419 --> 00:11:53,329 Speaker 2: the um uh Fed president over in uh the Dallas 229 00:11:53,340 --> 00:11:55,650 Speaker 2: Fed uh also carries, I think a kind of a 230 00:11:55,659 --> 00:11:59,489 Speaker 2: wealth of knowledge uh with her. Uh And so, you know, 231 00:11:59,500 --> 00:12:01,978 Speaker 2: in fact, uh we pay, we pay a lot of 232 00:12:01,989 --> 00:12:04,349 Speaker 2: attention to, to her speeches, I think on, on the 233 00:12:04,359 --> 00:12:05,650 Speaker 2: balance sheet. And uh 234 00:12:06,099 --> 00:12:08,750 Speaker 2: and I think she, she also has a good pulse of, 235 00:12:08,760 --> 00:12:11,840 Speaker 2: of what actually is kind of the the true demand 236 00:12:11,849 --> 00:12:14,569 Speaker 2: for uh for reserve assets from the bank. So I 237 00:12:14,580 --> 00:12:16,770 Speaker 2: think in general, both the awareness as well as the 238 00:12:16,780 --> 00:12:19,900 Speaker 2: tools that are out there, uh We think actually limit 239 00:12:19,909 --> 00:12:22,559 Speaker 2: the likelihood of a, of a big liquidity scare 240 00:12:23,400 --> 00:12:27,340 Speaker 1: because the awareness that you're talking about uh beyond the US, 241 00:12:27,349 --> 00:12:30,539 Speaker 1: when you talk to central bankers in other industrial and 242 00:12:30,719 --> 00:12:34,539 Speaker 1: emerging economies, do you feel that they are picking up 243 00:12:34,549 --> 00:12:38,098 Speaker 1: that cue from the FED and would probably be amen, 244 00:12:38,109 --> 00:12:42,099 Speaker 1: amenable toward more activist intervention with respect to liquidity going forward? 245 00:12:43,559 --> 00:12:46,750 Speaker 2: Yeah, I think, I think that that uh uh definitely 246 00:12:46,760 --> 00:12:48,570 Speaker 2: is there. I mean, you, you see it in the, 247 00:12:48,580 --> 00:12:52,619 Speaker 2: in the ECB uh uh as well. Uh I think those, 248 00:12:52,630 --> 00:12:55,380 Speaker 2: those discussions are, are, are happening and I think in 249 00:12:55,390 --> 00:13:00,079 Speaker 2: the previous um I would say two years or so. II, 250 00:13:00,090 --> 00:13:00,940 Speaker 2: I think that 251 00:13:01,239 --> 00:13:04,309 Speaker 2: that emphasis on while doing QT but also kind of 252 00:13:04,320 --> 00:13:06,830 Speaker 2: making sure that uh you know, liquid institution of the 253 00:13:06,840 --> 00:13:10,140 Speaker 2: banks uh are are kind of adequate, I think has 254 00:13:10,150 --> 00:13:13,679 Speaker 2: been uh has been quite uh uh I would say 255 00:13:13,690 --> 00:13:16,849 Speaker 2: a key input towards the way that they've been actually structuring. 256 00:13:17,200 --> 00:13:21,199 Speaker 2: Um you know, the various uh degrees of uh asset 257 00:13:21,210 --> 00:13:23,739 Speaker 2: purchase programs that the ECB has been doing. 258 00:13:24,130 --> 00:13:25,700 Speaker 2: Uh So I do think it is, it is top 259 00:13:25,710 --> 00:13:28,539 Speaker 2: of mind uh for, for a lot of the policymakers and, 260 00:13:28,549 --> 00:13:30,848 Speaker 2: and I do think that uh they, they do have 261 00:13:30,859 --> 00:13:32,510 Speaker 2: the tools to, to kind of overcome that, 262 00:13:33,059 --> 00:13:36,000 Speaker 1: right. Uh I do this chart Prakash, which is a 263 00:13:36,010 --> 00:13:38,909 Speaker 1: G four central bank balance sheet as a share of 264 00:13:38,919 --> 00:13:42,099 Speaker 1: G four GDP. And from that metric, we're not that 265 00:13:42,109 --> 00:13:45,570 Speaker 1: far from going back to the prepa levels of liquidity. 266 00:13:45,650 --> 00:13:47,859 Speaker 1: So in dollar terms, of course, it's much, much bigger 267 00:13:48,099 --> 00:13:51,530 Speaker 1: but nominal GDP has expanded quite a bit. So I 268 00:13:51,539 --> 00:13:54,119 Speaker 1: I hope that, you know, not just the fed but 269 00:13:54,130 --> 00:13:56,609 Speaker 1: other central banks including the ECB, but also probably Bank 270 00:13:56,619 --> 00:13:58,479 Speaker 1: of Japan and others are taking note of that. 271 00:13:59,090 --> 00:14:00,770 Speaker 2: Yeah, but I think, I think the important thing is 272 00:14:00,780 --> 00:14:02,760 Speaker 2: it's not so much GDP actually, you have to look 273 00:14:02,770 --> 00:14:06,439 Speaker 2: at bank assets. Um And I think that that part 274 00:14:06,450 --> 00:14:09,409 Speaker 2: in a way that credit creation process has actually been 275 00:14:09,419 --> 00:14:14,750 Speaker 2: not as strong as, as GDP, right? So um you know, 276 00:14:14,760 --> 00:14:16,809 Speaker 2: I mean that when when we look at what we 277 00:14:16,820 --> 00:14:18,609 Speaker 2: think is would be the kind of adequate level of 278 00:14:18,619 --> 00:14:22,780 Speaker 2: reserves scaling it by by bank assets, we think kind 279 00:14:22,789 --> 00:14:25,200 Speaker 2: of forms a bit of a better, a better base and, 280 00:14:25,210 --> 00:14:25,530 Speaker 2: and 281 00:14:26,049 --> 00:14:27,979 Speaker 2: uh which is, which kind of goes back a little 282 00:14:27,989 --> 00:14:31,229 Speaker 2: bit to the earlier discussion because the cycle has been 283 00:14:31,239 --> 00:14:33,500 Speaker 2: very unique Right. It's not, it's not been a credit 284 00:14:33,510 --> 00:14:37,429 Speaker 2: driven cycle but, but it's actually been income. Right. And, 285 00:14:37,440 --> 00:14:40,630 Speaker 2: and it's income in a sense of transfers from the 286 00:14:40,760 --> 00:14:45,380 Speaker 2: state to, to, to private entities. And so, you know, that's, 287 00:14:45,390 --> 00:14:47,729 Speaker 2: in fact, that's one reason why when interest rates went 288 00:14:47,739 --> 00:14:50,169 Speaker 2: up so much, you didn't have that kind of, 289 00:14:50,460 --> 00:14:54,309 Speaker 2: uh, a large uh contraction effect on, on real economies 290 00:14:54,320 --> 00:14:57,260 Speaker 2: just because uh balance sheets were in general a bit 291 00:14:57,270 --> 00:15:00,719 Speaker 2: of a better shape. Um So, so, you know, in 292 00:15:00,729 --> 00:15:04,599 Speaker 2: that sense, um uh you know, how much uh reserves 293 00:15:04,609 --> 00:15:07,770 Speaker 2: banks need actually may, may be a little bit less than, 294 00:15:08,099 --> 00:15:10,099 Speaker 2: than I think if you were just to scale it 295 00:15:10,530 --> 00:15:11,909 Speaker 2: relative to GDP, 296 00:15:12,289 --> 00:15:15,400 Speaker 1: right? Unless of course, you know, we see finally a 297 00:15:15,409 --> 00:15:18,119 Speaker 1: resumption of the credit cycle and then the ratios could 298 00:15:18,130 --> 00:15:20,919 Speaker 1: evolve quite dramatically going forward. Uh Yeah, I guess that's 299 00:15:20,929 --> 00:15:23,309 Speaker 1: a 2025 story. And we are thinking and hoping um 300 00:15:23,320 --> 00:15:26,929 Speaker 1: from a banking perspective that as rates come down, uh 301 00:15:26,940 --> 00:15:29,049 Speaker 1: there might be a little more intermediation even if it 302 00:15:29,059 --> 00:15:31,280 Speaker 1: is not in the US elsewhere. Uh There is certainly 303 00:15:31,289 --> 00:15:33,750 Speaker 1: a lot of impulse coming from the government for the 304 00:15:33,760 --> 00:15:37,070 Speaker 1: investment sector to pick up. So maybe it will happen 305 00:15:37,289 --> 00:15:38,380 Speaker 1: um progress. So 306 00:15:38,770 --> 00:15:42,590 Speaker 1: staying with the story outside the US, uh thinking about 307 00:15:42,599 --> 00:15:46,150 Speaker 1: Asian uh economies, uh my take is that, you know, 308 00:15:46,159 --> 00:15:48,799 Speaker 1: eight months into the year they have held up pretty well. 309 00:15:48,880 --> 00:15:51,510 Speaker 1: Trade has done better than what I would have feared 310 00:15:51,520 --> 00:15:56,349 Speaker 1: coming to 2024. Consumption is decent. Uh What's your assessment 311 00:15:56,359 --> 00:15:58,429 Speaker 1: of the performance of Asian economies this year? 312 00:15:59,549 --> 00:16:02,190 Speaker 2: No, actually, I'm very glad you brought this up because 313 00:16:02,200 --> 00:16:04,750 Speaker 2: I think it actually is a, is a, is an 314 00:16:04,760 --> 00:16:09,299 Speaker 2: unappreciated uh fact, uh in the sense of the degree 315 00:16:09,309 --> 00:16:13,369 Speaker 2: of uh resilience across a lot of emerging markets, uh 316 00:16:13,380 --> 00:16:15,309 Speaker 2: you know, we were competing the other day, this metric, 317 00:16:15,320 --> 00:16:17,849 Speaker 2: which is, you know, let's say you strip out China 318 00:16:18,299 --> 00:16:22,289 Speaker 2: and you look at EMX China growth relative to developed markets, 319 00:16:22,739 --> 00:16:25,880 Speaker 2: you know, in the early two thousands, uh this kind 320 00:16:25,890 --> 00:16:28,450 Speaker 2: of EMX China uh cohort 321 00:16:28,760 --> 00:16:33,020 Speaker 2: uh actually was outpacing developed market growth about 4% points. 322 00:16:33,729 --> 00:16:37,669 Speaker 2: Then actually, after the global financial crisis, um that actually 323 00:16:37,679 --> 00:16:42,340 Speaker 2: fell quite, quite rapidly. Um And you had, you know, 324 00:16:42,349 --> 00:16:46,229 Speaker 2: at some point, even less than 1% point uh in 325 00:16:46,239 --> 00:16:50,229 Speaker 2: terms of the out performance relative to, to develop markets. 326 00:16:50,650 --> 00:16:52,799 Speaker 2: Uh and, and this is just, you know, I mean, 327 00:16:52,809 --> 00:16:55,469 Speaker 2: it kind of goes against all our usual convergence uh 328 00:16:55,489 --> 00:16:58,140 Speaker 2: uh thinking with regards to, you know, ems kind of 329 00:16:58,150 --> 00:17:00,340 Speaker 2: growing at a much faster pace than, than D MS. 330 00:17:00,849 --> 00:17:03,489 Speaker 2: And so, you know, I always feel like when we 331 00:17:03,500 --> 00:17:05,750 Speaker 2: look back at that post GFC period, a lot of 332 00:17:05,760 --> 00:17:09,829 Speaker 2: people talk about secular stagnation in the US, but actually 333 00:17:09,839 --> 00:17:12,250 Speaker 2: the the secular stagnation was happening in the, in the 334 00:17:12,260 --> 00:17:17,109 Speaker 2: emerging market space. Um and, and that also actually passed 335 00:17:17,119 --> 00:17:18,169 Speaker 2: on to equity returns. 336 00:17:18,828 --> 00:17:22,238 Speaker 2: We did a decomposition of equity returns over the last decade. 337 00:17:22,249 --> 00:17:25,418 Speaker 2: Just kind of seeing why did Ems perform so badly? 338 00:17:25,779 --> 00:17:29,188 Speaker 2: And the biggest piece of why Ems perform badly was 339 00:17:29,198 --> 00:17:33,129 Speaker 2: just that earnings just didn't grow. Um And, and so, 340 00:17:33,138 --> 00:17:36,109 Speaker 2: you know, I think what we have seen, not just 341 00:17:36,119 --> 00:17:38,058 Speaker 2: for the first eight months of this year, but also 342 00:17:38,068 --> 00:17:42,667 Speaker 2: actually uh last year uh has actually been quite phenomenal. 343 00:17:42,678 --> 00:17:44,447 Speaker 2: So that, that differential between 344 00:17:44,930 --> 00:17:49,099 Speaker 2: EMX China and, and developed markets has now gone back 345 00:17:49,109 --> 00:17:52,169 Speaker 2: up to 2% points. Um And if you, you know, 346 00:17:52,180 --> 00:17:54,979 Speaker 2: if you use some proxy of new orders and et cetera, 347 00:17:54,989 --> 00:17:57,198 Speaker 2: uh uh coming out in PM, I actually, you know, 348 00:17:57,209 --> 00:17:59,469 Speaker 2: that that could be forecast to, to go back up 349 00:17:59,479 --> 00:18:00,390 Speaker 2: to about 3%. 350 00:18:01,040 --> 00:18:03,599 Speaker 2: So, so that out performance of uh 351 00:18:04,339 --> 00:18:08,149 Speaker 2: uh uh EMS relative to, to D MS is actually 352 00:18:08,160 --> 00:18:10,879 Speaker 2: uh picking up and, and I mean, you know, we, we, we, 353 00:18:10,890 --> 00:18:14,260 Speaker 2: we know at least structurally why uh that's been the case. 354 00:18:14,270 --> 00:18:16,959 Speaker 2: I mean, I think the national balance sheets, I think 355 00:18:16,969 --> 00:18:20,359 Speaker 2: has been, have been a lot uh a lot stronger. 356 00:18:20,699 --> 00:18:24,669 Speaker 2: Uh there's a much more um kind of reduced reliance on, 357 00:18:24,680 --> 00:18:26,079 Speaker 2: on foreign flows. 358 00:18:26,400 --> 00:18:29,280 Speaker 2: Um And uh you know, I think there's just in 359 00:18:29,290 --> 00:18:33,218 Speaker 2: general uh fewer, fewer imbalances. Uh but, you know, I mean, 360 00:18:33,229 --> 00:18:36,448 Speaker 2: there is also a cyclical story, I think, uh you know, 361 00:18:37,109 --> 00:18:39,739 Speaker 2: as you know, a lot of the countries, especially in Asia, 362 00:18:40,209 --> 00:18:43,540 Speaker 2: uh I think outside of, of Singapore, not a lot 363 00:18:43,550 --> 00:18:47,599 Speaker 2: of countries actually did uh uh you know, fiscal stimulus 364 00:18:47,609 --> 00:18:50,839 Speaker 2: to the extent that you saw in, you know, the US, 365 00:18:50,849 --> 00:18:53,920 Speaker 2: uh Europe, et cetera. And, and so, you know, the 366 00:18:53,930 --> 00:18:55,619 Speaker 2: output gaps, I think was still 367 00:18:56,160 --> 00:19:00,569 Speaker 2: quite negative, uh you know, coming into 2022. Uh And so, 368 00:19:00,579 --> 00:19:02,109 Speaker 2: in that sense, you know, I mean, I think there 369 00:19:02,119 --> 00:19:04,579 Speaker 2: was a little bit of, of uh of uh uh 370 00:19:04,589 --> 00:19:07,810 Speaker 2: slack that, that the economy could uh could grow into. 371 00:19:08,459 --> 00:19:11,780 Speaker 2: And then I think the other thing is um you know, the, 372 00:19:11,790 --> 00:19:16,150 Speaker 2: the resilience of EMS uh particularly Asia is the flip 373 00:19:16,160 --> 00:19:20,189 Speaker 2: side of the resilience of the US, right? Um You know, the, 374 00:19:20,199 --> 00:19:23,640 Speaker 2: the one thing which is um uh you know, been, 375 00:19:23,650 --> 00:19:25,938 Speaker 2: been very positive in the US has actually just been 376 00:19:25,949 --> 00:19:31,119 Speaker 2: manufacturing capa um and manufacturing Capex and, and structures usually, 377 00:19:31,209 --> 00:19:34,349 Speaker 2: uh uh you know, kind of helps uh em exports. 378 00:19:34,359 --> 00:19:36,400 Speaker 2: Uh you've seen it in, in uh uh in, in 379 00:19:36,410 --> 00:19:37,260 Speaker 2: Korea 380 00:19:37,540 --> 00:19:39,780 Speaker 2: uh is in this part of the world. So, so, 381 00:19:39,790 --> 00:19:42,250 Speaker 2: you know, I think, I think that that part of 382 00:19:42,260 --> 00:19:42,439 Speaker 2: um 383 00:19:43,109 --> 00:19:46,729 Speaker 2: uh the kind of resilience of the U SI think has, 384 00:19:46,739 --> 00:19:49,819 Speaker 2: has also helped uh helped this part of the world. But, 385 00:19:49,829 --> 00:19:51,739 Speaker 2: you know, it, you're right, it, it is actually a 386 00:19:51,750 --> 00:19:56,589 Speaker 2: really underappreciated uh uh phenomenon. Uh and, and actually, even, 387 00:19:56,599 --> 00:19:58,679 Speaker 2: even if you look at the, the turmoil that happened 388 00:19:58,689 --> 00:19:59,688 Speaker 2: in early August. 389 00:20:00,349 --> 00:20:05,579 Speaker 2: Um Once again, you know, I mean, ems in general did, did, OK. 390 00:20:05,589 --> 00:20:08,369 Speaker 2: I mean, you, you had the bifurcation between the Latin 391 00:20:08,380 --> 00:20:12,510 Speaker 2: American uh economies which were the kind of recipient of 392 00:20:12,520 --> 00:20:16,130 Speaker 2: the carry trade flows. Uh and, and those currencies unwound 393 00:20:16,140 --> 00:20:16,890 Speaker 2: quite sharply. 394 00:20:17,709 --> 00:20:19,930 Speaker 2: But in this part of the world, actually, you know, 395 00:20:19,939 --> 00:20:23,329 Speaker 2: suddenly you, you had uh, number one, the prospect of 396 00:20:23,339 --> 00:20:28,560 Speaker 2: the Fed uh actually uh uh cutting uh and two, 397 00:20:28,569 --> 00:20:30,650 Speaker 2: you had uh the yen appreciating. 398 00:20:31,260 --> 00:20:34,560 Speaker 2: Um And so, you know, you had Malaysian Ringgit Ruia 399 00:20:35,000 --> 00:20:39,430 Speaker 2: one actually uh uh appreciating quite uh quite a bit 400 00:20:39,439 --> 00:20:41,969 Speaker 2: of this in this region. So II, I do think 401 00:20:41,979 --> 00:20:45,540 Speaker 2: that um uh you know, the EMS are definitely in 402 00:20:45,550 --> 00:20:48,400 Speaker 2: a much better position uh now than, than they were, 403 00:20:48,410 --> 00:20:50,079 Speaker 2: I think post post GFC. 404 00:20:50,900 --> 00:20:51,879 Speaker 1: Absolutely. So, 405 00:20:52,030 --> 00:20:54,709 Speaker 1: you know that uh uh we at D BS did 406 00:20:54,719 --> 00:20:57,920 Speaker 1: a collaboration with uh B and company and an Council 407 00:20:57,930 --> 00:21:01,530 Speaker 1: looking at Substation over the next decade and one of 408 00:21:01,540 --> 00:21:03,119 Speaker 1: the points we made in this report and I think 409 00:21:03,130 --> 00:21:06,229 Speaker 1: it is reflected very clearly by what you just said 410 00:21:06,239 --> 00:21:10,969 Speaker 1: is that the last decade or two, somewhat underwhelming performance 411 00:21:10,979 --> 00:21:13,780 Speaker 1: should not be construed as a marker of things to come. 412 00:21:13,790 --> 00:21:15,030 Speaker 1: Because during that time, 413 00:21:15,369 --> 00:21:18,250 Speaker 1: balance sheets have improved, the quality of human capital has 414 00:21:18,260 --> 00:21:21,439 Speaker 1: improved and a lot of stars are aligned, so to 415 00:21:21,449 --> 00:21:23,930 Speaker 1: speak for the region, with respect to China plus one. 416 00:21:24,040 --> 00:21:26,410 Speaker 1: So the next 10 years in my view actually looks 417 00:21:26,420 --> 00:21:29,800 Speaker 1: pretty good, particularly from an earnings perspective. Uh, I would 418 00:21:29,810 --> 00:21:33,188 Speaker 1: not look at the lackluster performance of the past decade 419 00:21:33,199 --> 00:21:35,389 Speaker 1: as a market for things to come at all. So 420 00:21:35,400 --> 00:21:37,188 Speaker 1: glad to know that you're on the same page. 421 00:21:38,609 --> 00:21:40,910 Speaker 2: Yeah. Yeah. You know, I, I think, um, I mean, 422 00:21:40,920 --> 00:21:45,419 Speaker 2: the challenge for EMS of, particularly investors in the EMS 423 00:21:45,430 --> 00:21:49,069 Speaker 2: has always been uh how do you get access to 424 00:21:49,209 --> 00:21:51,290 Speaker 2: uh to the growth? Right. So, you know, I mean, 425 00:21:51,300 --> 00:21:53,609 Speaker 2: you'd be hard pressed to find the kind of growth 426 00:21:53,619 --> 00:21:55,489 Speaker 2: numbers you get in this part of the world. Uh 427 00:21:55,500 --> 00:21:57,739 Speaker 2: literally any anywhere else. 428 00:21:58,109 --> 00:22:01,198 Speaker 2: Um But at the same time, like at least on 429 00:22:01,209 --> 00:22:04,189 Speaker 2: the list of equity space, you know, returns have just 430 00:22:04,199 --> 00:22:07,800 Speaker 2: not been uh not been that great uh especially for, 431 00:22:07,810 --> 00:22:10,989 Speaker 2: for a a. Um and, and so I think, uh 432 00:22:11,000 --> 00:22:14,540 Speaker 2: you know, really kind of being uh uh selective thinking about, 433 00:22:14,550 --> 00:22:18,229 Speaker 2: you know, the particular sectors. Um and then, and then 434 00:22:18,239 --> 00:22:22,050 Speaker 2: I think, um um you know, of course India is, 435 00:22:22,060 --> 00:22:24,680 Speaker 2: is uh one of the few markets where, 436 00:22:25,199 --> 00:22:28,119 Speaker 2: you know, markets have been compounding at 12 to 14% 437 00:22:28,439 --> 00:22:31,399 Speaker 2: a year actually since the nineties, right? So kind of 438 00:22:31,410 --> 00:22:35,300 Speaker 2: through any uh any administration. Uh So really, I think 439 00:22:35,310 --> 00:22:36,969 Speaker 2: you gotta, you gotta pick your spots uh 440 00:22:37,380 --> 00:22:38,219 Speaker 2: uh pre spots 441 00:22:38,290 --> 00:22:38,459 Speaker 1: well 442 00:22:38,469 --> 00:22:38,810 Speaker 2: here, 443 00:22:39,160 --> 00:22:44,510 Speaker 1: right? But also that industry is so instructive for policymakers 444 00:22:44,520 --> 00:22:49,500 Speaker 1: in ASEAN that when you have that virtual cycle, virtual cycle, 445 00:22:49,510 --> 00:22:54,280 Speaker 1: if you will of capital markets, dynamic, growing very fast, 446 00:22:54,290 --> 00:22:55,449 Speaker 1: creates as entrepreneurs, 447 00:22:56,079 --> 00:23:00,069 Speaker 1: energy, which then becomes so fulfilling. And that's what we're 448 00:23:00,079 --> 00:23:02,380 Speaker 1: seeing in India, you know, on a regular basis, tremendous 449 00:23:02,390 --> 00:23:06,829 Speaker 1: wealth creation, which itself is feeding into innovation and new 450 00:23:06,839 --> 00:23:09,790 Speaker 1: companies and new ideas. Uh And it's hardening to watch that. 451 00:23:09,839 --> 00:23:12,979 Speaker 1: I think ASEAN used to be like that pre 1997. 452 00:23:15,109 --> 00:23:17,939 Speaker 2: No, you're right. You know, I actually, I, I um I, 453 00:23:18,000 --> 00:23:20,689 Speaker 2: I think it's, it still is, right. I mean, um 454 00:23:20,699 --> 00:23:23,890 Speaker 2: you know, if you look at, of course, Indonesia has 455 00:23:24,079 --> 00:23:27,560 Speaker 2: some of the more um kind of well known uh 456 00:23:27,579 --> 00:23:31,189 Speaker 2: start up whether it's uh you know, Gojek to BP. 457 00:23:32,270 --> 00:23:35,729 Speaker 2: Uh And uh but actually, even if you look at Malaysia, 458 00:23:36,479 --> 00:23:40,530 Speaker 2: I think the entrepreneurial spirit that is actually phenomenally strong. 459 00:23:40,859 --> 00:23:44,349 Speaker 2: Um And so that ecosystem around, you know, that kind 460 00:23:44,359 --> 00:23:49,069 Speaker 2: of China plus one strategy, I think uh is actually 461 00:23:49,079 --> 00:23:52,040 Speaker 2: uh thriving and back to your point. I think that 462 00:23:52,050 --> 00:23:53,069 Speaker 2: to me is the 463 00:23:53,780 --> 00:23:57,419 Speaker 2: kind of the, the raw ingredients that you need to 464 00:23:57,430 --> 00:24:02,439 Speaker 2: then actually build, you know, capital markets, et cetera. Uh 465 00:24:02,449 --> 00:24:06,270 Speaker 2: uh around. Uh and, you know, at least on, on 466 00:24:06,280 --> 00:24:08,589 Speaker 2: paper that they have a lot of these good policies 467 00:24:08,599 --> 00:24:12,310 Speaker 2: are really trying to help the small midcap um uh 468 00:24:12,329 --> 00:24:15,920 Speaker 2: uh space kind of get uh better access to, to 469 00:24:15,930 --> 00:24:19,719 Speaker 2: financing uh promoting a venture capital ecosystem 470 00:24:20,180 --> 00:24:23,339 Speaker 2: So things like this, I think um you know, once 471 00:24:23,349 --> 00:24:25,949 Speaker 2: it's really well developed, I think we'll, we'll capture even 472 00:24:25,959 --> 00:24:27,540 Speaker 2: global investor interests, 473 00:24:27,859 --> 00:24:28,250 Speaker 1: right? 474 00:24:28,410 --> 00:24:31,439 Speaker 1: And I think in the region there's some frustration about 475 00:24:31,449 --> 00:24:35,139 Speaker 1: like we need deeper capital markets and better stock markets. 476 00:24:35,280 --> 00:24:35,680 Speaker 1: But I think 477 00:24:35,755 --> 00:24:38,015 Speaker 1: I, I heard someone say that, you know, without good companies, 478 00:24:38,025 --> 00:24:40,135 Speaker 1: you can't have good markets. It's not necessarily a chicken 479 00:24:40,145 --> 00:24:43,015 Speaker 1: and egg thing, you have to have good exciting companies first. 480 00:24:43,314 --> 00:24:47,104 Speaker 1: Uh So, so yeah, I'm looking forward to the next 481 00:24:47,114 --> 00:24:50,574 Speaker 1: round of entrepreneurs and next round of value creation in 482 00:24:50,584 --> 00:24:54,175 Speaker 1: this region. Um progress. Let's talk a little bit about China. 483 00:24:54,479 --> 00:24:57,599 Speaker 1: Uh We have had a couple of years now where 484 00:24:57,609 --> 00:25:01,260 Speaker 1: a steady drip of policy easing has been the characteristic 485 00:25:01,270 --> 00:25:04,900 Speaker 1: of the Chinese economy. Uh but concerns around property sector 486 00:25:04,910 --> 00:25:09,430 Speaker 1: consolidation is still substantial. And now lately, very recently, we've 487 00:25:09,439 --> 00:25:12,380 Speaker 1: also seen this issue related to this, this sharp decline 488 00:25:12,390 --> 00:25:16,329 Speaker 1: in interest rates around everybody crowding into the Chinese government market. 489 00:25:16,439 --> 00:25:19,060 Speaker 1: So some, some thoughts around China. 490 00:25:20,510 --> 00:25:24,489 Speaker 2: Yeah, look, I I think um uh the starting point 491 00:25:24,500 --> 00:25:27,478 Speaker 2: uh for thinking about China is really that 492 00:25:27,760 --> 00:25:31,540 Speaker 2: uh trend growth has, has come down, right? Um You know, 493 00:25:31,550 --> 00:25:34,030 Speaker 2: one of the reasons I talked about uh you know, 494 00:25:34,040 --> 00:25:36,609 Speaker 2: doing that E MD M comparison in terms of growth rates, 495 00:25:36,619 --> 00:25:39,880 Speaker 2: kind of excluding China uh is because you don't want 496 00:25:39,890 --> 00:25:43,139 Speaker 2: to kind of take that huge decline in trend growth 497 00:25:43,349 --> 00:25:47,199 Speaker 2: uh to, to distort that that relationship. Uh So as, 498 00:25:47,209 --> 00:25:50,510 Speaker 2: you know, China, uh you know, 1015 years ago was 499 00:25:50,520 --> 00:25:51,979 Speaker 2: growing between 8 to 10%. 500 00:25:52,420 --> 00:25:55,959 Speaker 2: Uh We now have trend growth at about four in change. 501 00:25:56,260 --> 00:25:59,020 Speaker 2: Uh And we think that actually falls to about three 502 00:25:59,030 --> 00:26:01,589 Speaker 2: and change in the next decade. Uh So it's really 503 00:26:01,599 --> 00:26:04,589 Speaker 2: is a very sharp uh uh fall in, in trend 504 00:26:04,599 --> 00:26:07,140 Speaker 2: growth and a large part of that is just uh 505 00:26:07,150 --> 00:26:10,599 Speaker 2: it's just demographics. Uh and, and also actually a moderation 506 00:26:10,609 --> 00:26:14,359 Speaker 2: in uh in, in productivity. Um And so, you know, that, 507 00:26:14,560 --> 00:26:18,599 Speaker 2: that I feel kind of needs to recalibrate in terms 508 00:26:18,609 --> 00:26:21,109 Speaker 2: of actually how fast we think China could grow. 509 00:26:21,630 --> 00:26:26,329 Speaker 2: And to me, the way I read uh uh policymakers 510 00:26:26,339 --> 00:26:29,300 Speaker 2: read of the economy is that actually they've also kind 511 00:26:29,310 --> 00:26:31,780 Speaker 2: of incorporated that the fact that that trend growth is 512 00:26:31,790 --> 00:26:34,780 Speaker 2: lower in the way that they are thinking about uh 513 00:26:34,790 --> 00:26:39,410 Speaker 2: about stimulus. Um So, you know, is, is a uh 514 00:26:39,420 --> 00:26:42,889 Speaker 2: kind of a 5% growth uh if they achieve that 515 00:26:43,479 --> 00:26:47,660 Speaker 2: this year, um is that really uh uh an, an 516 00:26:47,670 --> 00:26:50,399 Speaker 2: underperformance or, or is that kind of, you know, in 517 00:26:50,410 --> 00:26:54,089 Speaker 2: line with where with, where trend growth uh uh is? 518 00:26:54,099 --> 00:26:56,400 Speaker 2: Uh And I think, I think I, in some sense, 519 00:26:56,410 --> 00:26:59,339 Speaker 2: uh it is actually already uh going down to, to 520 00:26:59,349 --> 00:27:01,859 Speaker 2: where trend growth is. Uh And I, and that's why 521 00:27:01,869 --> 00:27:04,968 Speaker 2: I don't expect kind of a big uh Bazooka type 522 00:27:04,979 --> 00:27:07,579 Speaker 2: uh stimulus that, that they will do. But ha but 523 00:27:07,589 --> 00:27:09,819 Speaker 2: having said that I, I do think that 524 00:27:10,119 --> 00:27:14,229 Speaker 2: um there is an issue of um, kind of uh 525 00:27:14,239 --> 00:27:19,300 Speaker 2: lack of animal spirits. Uh that's, that's, uh you know, if, 526 00:27:19,310 --> 00:27:23,000 Speaker 2: if not addressed, well, I think could, could potentially lead 527 00:27:23,010 --> 00:27:25,439 Speaker 2: to uh, you know, kind of a sharper fall in 528 00:27:25,449 --> 00:27:30,250 Speaker 2: growth and, and uh a bit more deflationary uh uh dynamics. 529 00:27:30,660 --> 00:27:34,420 Speaker 2: Um What, what I think, um uh there, you know, 530 00:27:34,430 --> 00:27:37,500 Speaker 2: if I, if I look at the uh uh kind 531 00:27:37,510 --> 00:27:40,000 Speaker 2: of the output from the third plenum, also the July 532 00:27:40,010 --> 00:27:45,040 Speaker 2: Politburo meeting, it looks like these issues are, are front and, 533 00:27:45,050 --> 00:27:47,540 Speaker 2: and center. Um You know, I was surprised just to 534 00:27:47,550 --> 00:27:49,939 Speaker 2: hear how much, you know, like the phrase kind of 535 00:27:49,949 --> 00:27:53,540 Speaker 2: supporting consumption uh has come up, I think in recent 536 00:27:53,550 --> 00:27:55,780 Speaker 2: uh policy uh statements. 537 00:27:56,099 --> 00:27:58,260 Speaker 2: So, so I think that knowledge of what needs to 538 00:27:58,270 --> 00:28:02,560 Speaker 2: be done, uh you know, everything from supporting consumption to 539 00:28:02,849 --> 00:28:08,900 Speaker 2: improving the uh balance between center and local government finances, 540 00:28:09,130 --> 00:28:13,919 Speaker 2: improving land reform uh with regards to mobility of, of 541 00:28:13,930 --> 00:28:18,399 Speaker 2: people uh improving urbanization. And I think all these things 542 00:28:18,410 --> 00:28:22,560 Speaker 2: are definitely the right direction of travel. Um So to me, 543 00:28:22,569 --> 00:28:25,040 Speaker 2: it really is just kind of a an execution 544 00:28:25,479 --> 00:28:29,260 Speaker 2: uh issue that uh uh that, that is, is a 545 00:28:29,270 --> 00:28:30,010 Speaker 2: little bit lucky. 546 00:28:31,439 --> 00:28:34,819 Speaker 1: I just want to throw in one nerdy economics question, 547 00:28:34,829 --> 00:28:37,739 Speaker 1: putting markets aside for a second Prakash, which is this 548 00:28:37,750 --> 00:28:40,849 Speaker 1: whole notion that the US Treasury has brought to the fore, 549 00:28:40,859 --> 00:28:45,510 Speaker 1: the China overcapacity argument and its role in destabilizing global 550 00:28:45,520 --> 00:28:48,780 Speaker 1: markets and creating deflation risk. Although I thought the US 551 00:28:48,790 --> 00:28:51,560 Speaker 1: Treasury would worry about inflation risk, but overcapacity seems to 552 00:28:51,569 --> 00:28:53,790 Speaker 1: be the other end of the argument. What's your sense 553 00:28:53,800 --> 00:28:54,619 Speaker 1: of overcapacity? 554 00:28:56,869 --> 00:28:59,989 Speaker 2: Yeah, you know, it's uh uh you know, it's funny 555 00:29:00,040 --> 00:29:03,189 Speaker 2: as much as we think about um this kind of 556 00:29:03,199 --> 00:29:06,449 Speaker 2: lack of animal spirits in, in China, I think in 557 00:29:06,459 --> 00:29:12,140 Speaker 2: the sectors uh for which China is thriving. Um you know, 558 00:29:12,150 --> 00:29:18,319 Speaker 2: EVs batteries solar, I mean, the competition is absolutely fierce. 559 00:29:18,569 --> 00:29:21,290 Speaker 2: Um You know, I, I uh 560 00:29:22,510 --> 00:29:25,510 Speaker 2: we've seen, you know, we've met companies where, you know, that, 561 00:29:25,520 --> 00:29:29,290 Speaker 2: that the margin squeeze has just been uh quite uh 562 00:29:29,300 --> 00:29:32,479 Speaker 2: uh striking across these sectors just because there's a very 563 00:29:32,489 --> 00:29:36,089 Speaker 2: strong competition and the quality of the products that they're, 564 00:29:36,099 --> 00:29:38,849 Speaker 2: that they're putting out, I think is, is just uh quite, 565 00:29:38,859 --> 00:29:41,920 Speaker 2: quite phenomenal. Um You know, I've, I've seen kind of 566 00:29:41,930 --> 00:29:46,449 Speaker 2: autonomous driving developments in China, which I think is much 567 00:29:46,459 --> 00:29:48,949 Speaker 2: better than, than anywhere else. Uh uh you feel uh 568 00:29:48,959 --> 00:29:52,000 Speaker 2: in the world. So uh II I find it um 569 00:29:52,300 --> 00:29:56,569 Speaker 2: uh uh hard to, to, to think really in terms 570 00:29:56,579 --> 00:30:00,000 Speaker 2: of uh of overcapacity, I think uh uh in, in 571 00:30:00,010 --> 00:30:01,869 Speaker 2: that sense, I mean, as you know, the the world 572 00:30:01,880 --> 00:30:04,660 Speaker 2: needs a lot of these uh kind of green uh 573 00:30:04,670 --> 00:30:08,449 Speaker 2: uh green products. Um I think the challenge uh really 574 00:30:08,459 --> 00:30:13,140 Speaker 2: here is uh what happens if more and more countries 575 00:30:13,150 --> 00:30:16,969 Speaker 2: put up barriers uh with regards to, to China, uh 576 00:30:16,979 --> 00:30:19,310 Speaker 2: which I think then uh 577 00:30:19,709 --> 00:30:21,680 Speaker 2: in a way it's gonna feed a little bit back 578 00:30:21,689 --> 00:30:25,790 Speaker 2: more into the deflationary uh challenges that you have in 579 00:30:25,800 --> 00:30:28,800 Speaker 2: uh uh in China. Uh ultimately, as we know, uh 580 00:30:28,810 --> 00:30:31,989 Speaker 2: we just need to find ways to boost demand. Um 581 00:30:32,000 --> 00:30:34,859 Speaker 2: And uh I think that's where, you know, that whole 582 00:30:34,869 --> 00:30:39,310 Speaker 2: emphasis on consumption. Uh if it actually gets um uh 583 00:30:39,319 --> 00:30:42,280 Speaker 2: gets more traction, I think that will be a better 584 00:30:42,290 --> 00:30:44,280 Speaker 2: way of solving this, you know, kind of quote unquote 585 00:30:44,290 --> 00:30:48,599 Speaker 2: overcapacity problem uh than I think really trying to, to 586 00:30:48,910 --> 00:30:51,140 Speaker 2: limit limit their, their exports. 587 00:30:51,939 --> 00:30:54,339 Speaker 1: OK. In case our listeners missed it. Uh I just 588 00:30:54,349 --> 00:30:57,119 Speaker 1: want to reiterate the point you made in a different 589 00:30:57,130 --> 00:30:59,699 Speaker 1: way because that's a really cool one which is concerns 590 00:30:59,709 --> 00:31:05,329 Speaker 1: about overcapacity with trade restriction measures and treating domestic supply 591 00:31:05,339 --> 00:31:09,890 Speaker 1: chains would actually compound overcapacity problem on a global systemic scale. 592 00:31:11,180 --> 00:31:12,150 Speaker 2: Yeah, I think so. Yeah. 593 00:31:12,229 --> 00:31:16,170 Speaker 1: Yeah. Yeah. Well, put uh I think uh this issue 594 00:31:16,180 --> 00:31:19,119 Speaker 1: came up in the context of India's ambition to have 595 00:31:19,130 --> 00:31:22,750 Speaker 1: its own solar industry when the Chinese were supplying those 596 00:31:22,760 --> 00:31:25,359 Speaker 1: solar cells with the rock bottom prices. And I think 597 00:31:25,369 --> 00:31:27,569 Speaker 1: my initial inflation was exactly that, that if you want 598 00:31:27,579 --> 00:31:29,920 Speaker 1: to have even more solar cells in the world, how 599 00:31:29,930 --> 00:31:33,390 Speaker 1: does it help uh from a global capacity perspective? I 600 00:31:33,400 --> 00:31:33,750 Speaker 1: think 601 00:31:34,359 --> 00:31:36,579 Speaker 1: at least in the countries of India Prakash, I see 602 00:31:36,589 --> 00:31:40,319 Speaker 1: a little more calibrated approach to dealing with China and 603 00:31:40,329 --> 00:31:44,369 Speaker 1: its production in the last year or so. Uh, not 604 00:31:44,380 --> 00:31:48,569 Speaker 1: necessarily tariff barriers and protection but other ways of making 605 00:31:48,579 --> 00:31:51,420 Speaker 1: the relationship a bit more balanced, which I like, I 606 00:31:51,430 --> 00:31:53,209 Speaker 1: would like to see some of that from the US, 607 00:31:53,410 --> 00:31:57,209 Speaker 1: but I think independent of December, November's election outcome, I 608 00:31:57,219 --> 00:31:59,000 Speaker 1: don't think the US policy on China is going to 609 00:31:59,010 --> 00:31:59,640 Speaker 1: change much. 610 00:32:02,170 --> 00:32:04,910 Speaker 2: Yeah. No, I think, I think you're right. Um I 611 00:32:04,920 --> 00:32:09,099 Speaker 2: think um uh I in a way the, 612 00:32:10,000 --> 00:32:13,130 Speaker 2: as much as uh you know, the current administration is 613 00:32:13,140 --> 00:32:17,420 Speaker 2: trying to focus on the small yard high fence uh approach. 614 00:32:17,920 --> 00:32:20,849 Speaker 2: Uh to me, the risk is, is twofold, one is 615 00:32:20,859 --> 00:32:26,199 Speaker 2: that you are introducing actually new policies. Um for example, 616 00:32:26,209 --> 00:32:30,140 Speaker 2: you know, uh restrictions on the outward flow of capital. 617 00:32:30,500 --> 00:32:34,739 Speaker 2: Uh And once I think you introduce new policies, I 618 00:32:34,750 --> 00:32:37,079 Speaker 2: think that the risk is always that, that, you know, 619 00:32:37,089 --> 00:32:39,739 Speaker 2: that uh these things start start expanding. 620 00:32:40,449 --> 00:32:43,930 Speaker 2: Uh and, and second is I think um from a 621 00:32:43,939 --> 00:32:49,130 Speaker 2: financial investor perspective, uh you know, I think there, there 622 00:32:49,140 --> 00:32:52,640 Speaker 2: is actually already uh uh among a lot of uh 623 00:32:52,650 --> 00:32:56,270 Speaker 2: uh kind of us institutional investors, you know, some form 624 00:32:56,280 --> 00:32:57,300 Speaker 2: of financial decoupling. 625 00:32:57,949 --> 00:33:01,369 Speaker 2: Uh that's, that's happening between the US and China and, 626 00:33:01,380 --> 00:33:05,209 Speaker 2: and I think that's, that's very unfortunate. Um So, so, 627 00:33:05,219 --> 00:33:08,170 Speaker 2: you know, that, that part of it, I think um 628 00:33:08,390 --> 00:33:11,250 Speaker 2: uh you're right, I think would be relatively robust to 629 00:33:11,270 --> 00:33:14,810 Speaker 2: uh to the different administration. But, you know, II I 630 00:33:14,819 --> 00:33:15,770 Speaker 2: think that 631 00:33:17,109 --> 00:33:20,650 Speaker 2: in theory that that more targeted approach is still better 632 00:33:20,660 --> 00:33:23,930 Speaker 2: than I think, you know, a large blanket tariff for 633 00:33:23,939 --> 00:33:28,699 Speaker 2: uh all such policies which I think will uh hurt 634 00:33:28,709 --> 00:33:29,869 Speaker 2: not just um 635 00:33:30,670 --> 00:33:35,619 Speaker 2: uh uh uh Chinese manufacturers, but, but also us, us consumers. 636 00:33:35,979 --> 00:33:40,150 Speaker 2: Um and you know, it's probably uh with the saliency 637 00:33:40,160 --> 00:33:43,130 Speaker 2: of inflation, I think still in the background, I I 638 00:33:43,140 --> 00:33:45,239 Speaker 2: think this could really put the fed in a very 639 00:33:45,250 --> 00:33:51,270 Speaker 2: difficult position if us policy kind of goes down that path. 640 00:33:51,699 --> 00:33:52,680 Speaker 1: Yes, yes, definitely 641 00:33:52,689 --> 00:33:53,250 Speaker 1: concur 642 00:33:53,630 --> 00:33:57,430 Speaker 1: um speaking of uh issues that sort of afflict the 643 00:33:57,439 --> 00:34:00,329 Speaker 1: market and one is, of course, you know, the issue 644 00:34:00,339 --> 00:34:02,510 Speaker 1: related to the US election, but the other one is 645 00:34:02,520 --> 00:34:05,530 Speaker 1: around currency market, you touched upon this briefly earlier percussion, 646 00:34:05,540 --> 00:34:07,780 Speaker 1: let's expand on that. So what are your thoughts on 647 00:34:07,790 --> 00:34:10,620 Speaker 1: this currency market volatility that we experienced in late July, 648 00:34:11,020 --> 00:34:14,540 Speaker 1: early August? And if you think that the conditions that 649 00:34:14,550 --> 00:34:16,459 Speaker 1: made that happen are still very much in place and 650 00:34:16,469 --> 00:34:18,409 Speaker 1: therefore we could have a recurrence. 651 00:34:20,219 --> 00:34:21,879 Speaker 2: Yeah. So, so um 652 00:34:22,820 --> 00:34:26,239 Speaker 2: you know, I think what's very unique in this um 653 00:34:26,620 --> 00:34:32,510 Speaker 2: uh in this cycle is really uh both cyclical as 654 00:34:32,520 --> 00:34:36,399 Speaker 2: well as uh uh kind of in a way structural 655 00:34:36,409 --> 00:34:41,439 Speaker 2: uh uh divergence across the major economies, right? So, you know, 656 00:34:41,449 --> 00:34:45,239 Speaker 2: you've got the uh the US which uh you know, 657 00:34:45,250 --> 00:34:48,280 Speaker 2: it kind of operating above capacity kind of coming back 658 00:34:48,540 --> 00:34:52,479 Speaker 2: uh towards uh you know, some concept of, of equilibrium. 659 00:34:52,949 --> 00:34:57,379 Speaker 2: And then you've got uh uh Japan which, you know, 660 00:34:57,389 --> 00:35:01,010 Speaker 2: is kind of exiting uh deflation and kind of, you know, 661 00:35:01,020 --> 00:35:04,529 Speaker 2: starting a normalization process. And then you've got China, which is, 662 00:35:04,540 --> 00:35:07,089 Speaker 2: you know, as I saying, kind of dealing with, with 663 00:35:07,100 --> 00:35:11,580 Speaker 2: this slowing trend growth. Um you know, it's funny when you, 664 00:35:11,590 --> 00:35:12,570 Speaker 2: when you go to Japan, 665 00:35:12,889 --> 00:35:17,840 Speaker 2: um people actually talk about the wage price spiral in 666 00:35:17,850 --> 00:35:20,799 Speaker 2: a very positive uh light. And in fact, it's something 667 00:35:20,810 --> 00:35:23,669 Speaker 2: that they're trying to encourage. Uh whereas, you know, if 668 00:35:23,679 --> 00:35:26,330 Speaker 2: you go to Europe, uh you know, the conversation, that 669 00:35:26,340 --> 00:35:28,739 Speaker 2: is what we are trying to avoid the, the wage 670 00:35:28,750 --> 00:35:32,179 Speaker 2: price spiral. So I think ultimately, when you, when you're 671 00:35:32,189 --> 00:35:35,658 Speaker 2: faced with this kind of uh uh both cyclical and 672 00:35:35,669 --> 00:35:40,090 Speaker 2: policy uh divergence, uh it is going to be currency 673 00:35:40,100 --> 00:35:40,830 Speaker 2: markets that, 674 00:35:41,520 --> 00:35:45,300 Speaker 2: that play a lot of the um uh the, the adjustments. 675 00:35:45,669 --> 00:35:49,540 Speaker 2: Um and I think central to that, uh I think 676 00:35:49,550 --> 00:35:54,219 Speaker 2: really is the uh uh the yen um uh you know, for, 677 00:35:54,229 --> 00:35:56,899 Speaker 2: for historical reasons, et cetera. But, but also the fact 678 00:35:56,909 --> 00:35:59,000 Speaker 2: that it was one of the markets where you really 679 00:35:59,010 --> 00:36:03,010 Speaker 2: had the largest uh policy divergence uh between, between the 680 00:36:03,020 --> 00:36:04,899 Speaker 2: US and uh and Japan. 681 00:36:05,639 --> 00:36:09,689 Speaker 2: Um And so, you know, I think that uh direction 682 00:36:09,699 --> 00:36:14,330 Speaker 2: of uh of unwind, uh we think uh still has 683 00:36:14,340 --> 00:36:18,340 Speaker 2: a little bit uh ways to go. Um because, you know, 684 00:36:18,350 --> 00:36:22,340 Speaker 2: we do think that, that um uh the BOJ actually still, 685 00:36:22,350 --> 00:36:27,659 Speaker 2: still normalizes um uh from, from where they are uh today. 686 00:36:27,919 --> 00:36:30,459 Speaker 2: Um You know, I mean, if, if Japan does manage 687 00:36:30,469 --> 00:36:34,570 Speaker 2: to get a 2% inflation, 688 00:36:34,909 --> 00:36:39,060 Speaker 2: we estimate their trend growth at, you know, slightly below 1% real. 689 00:36:39,090 --> 00:36:41,790 Speaker 2: So that's, that's an economy that's operating at about a 3% 690 00:36:42,149 --> 00:36:45,089 Speaker 2: nominal growth rate. Uh It's not too 691 00:36:45,790 --> 00:36:48,290 Speaker 2: unreasonable to have a policy rate that, you know, is 692 00:36:48,300 --> 00:36:51,169 Speaker 2: around 1% or, or even up to 1.5% in the 693 00:36:51,179 --> 00:36:53,850 Speaker 2: long run. Um And actually, if you look at the, 694 00:36:53,860 --> 00:36:56,489 Speaker 2: the way that the J GB curve is priced, you know, 695 00:36:56,500 --> 00:36:58,040 Speaker 2: at the back end of the curve, actually, there is 696 00:36:58,050 --> 00:37:00,989 Speaker 2: a lot of, of uh uh hikes that's been priced 697 00:37:01,000 --> 00:37:02,750 Speaker 2: in the 10 year tenure rate is, you know, kind 698 00:37:02,760 --> 00:37:06,090 Speaker 2: of north of 2.5% right. So, so in that sense, 699 00:37:06,100 --> 00:37:09,290 Speaker 2: we do think that, um you are gonna continue to, 700 00:37:09,300 --> 00:37:13,100 Speaker 2: to get this, um, uh divergence where, where we think 701 00:37:13,340 --> 00:37:14,370 Speaker 2: back to Japan is kind of, 702 00:37:14,679 --> 00:37:17,060 Speaker 2: you know, interests are going to be going upwards and, 703 00:37:17,070 --> 00:37:19,780 Speaker 2: and the fed is going to be going, going downwards. 704 00:37:20,300 --> 00:37:22,759 Speaker 2: Um So, you know, while, while the bulk of the 705 00:37:22,770 --> 00:37:26,009 Speaker 2: moves have happened, uh we do still think that that 706 00:37:26,020 --> 00:37:29,679 Speaker 2: actually the yen uh could potentially uh appreciate a bit 707 00:37:29,689 --> 00:37:32,479 Speaker 2: further from here. Uh But like I was saying, you know, 708 00:37:32,489 --> 00:37:36,060 Speaker 2: I think actually for our part of the world, uh 709 00:37:36,070 --> 00:37:37,659 Speaker 2: it's actually a good thing. 710 00:37:38,520 --> 00:37:41,459 Speaker 2: Um It's a good thing in the sense that uh 711 00:37:41,469 --> 00:37:45,219 Speaker 2: I think it does give room for regional currencies here 712 00:37:45,229 --> 00:37:47,939 Speaker 2: uh to appreciate. Uh because as, you know, the, the, 713 00:37:47,949 --> 00:37:51,179 Speaker 2: the big thing about Asian economies is that we're all 714 00:37:51,189 --> 00:37:54,699 Speaker 2: net surplus economies. Uh and the, the thing with net 715 00:37:54,709 --> 00:37:57,280 Speaker 2: surplus economies is that, uh I mean, outside of uh 716 00:37:57,290 --> 00:38:00,739 Speaker 2: uh India and Indonesia, um we are, we, we tend 717 00:38:00,750 --> 00:38:02,100 Speaker 2: to be low yielders. 718 00:38:02,429 --> 00:38:05,270 Speaker 2: Uh And I think in that low yielded environment, it 719 00:38:05,280 --> 00:38:09,859 Speaker 2: was just very difficult uh to kind of uh you know, 720 00:38:09,870 --> 00:38:13,479 Speaker 2: get exchange rates on a stable or appreciating trend uh 721 00:38:13,489 --> 00:38:17,799 Speaker 2: when us interest rates were north of 5%. So I think, 722 00:38:17,810 --> 00:38:21,100 Speaker 2: I think uh um with FED coming down, but also 723 00:38:21,110 --> 00:38:23,759 Speaker 2: with the yen appreciating, I think it does give this 724 00:38:23,770 --> 00:38:27,610 Speaker 2: region a lot more policy space. Um and kind of 725 00:38:27,620 --> 00:38:28,570 Speaker 2: going back to China. 726 00:38:29,070 --> 00:38:31,069 Speaker 2: Uh I think it gives them a lot more freedom 727 00:38:31,080 --> 00:38:35,689 Speaker 2: to uh to cut interest rates. Uh Then I think 728 00:38:35,699 --> 00:38:37,330 Speaker 2: um it was the case maybe about 729 00:38:38,030 --> 00:38:39,649 Speaker 2: two months or so back. 730 00:38:40,409 --> 00:38:41,760 Speaker 1: Right. No, absolutely. 731 00:38:41,889 --> 00:38:44,350 Speaker 1: Uh And also, I mean, one observation and one follow 732 00:38:44,360 --> 00:38:48,000 Speaker 1: up question, one observation is that unlike the two previous 733 00:38:48,010 --> 00:38:50,479 Speaker 1: episodes in the past quarter of a century, when the 734 00:38:50,489 --> 00:38:53,100 Speaker 1: BOJ tried to do lift off and had to scale 735 00:38:53,110 --> 00:38:55,300 Speaker 1: back its ambition immediately because the economy fell apart. I 736 00:38:55,310 --> 00:38:59,669 Speaker 1: think things are fundamentally quite different. I mean, Japan's industrial 737 00:38:59,679 --> 00:39:02,020 Speaker 1: sector for the first time in a quarter century seems 738 00:39:02,030 --> 00:39:03,939 Speaker 1: energized and new investments are taking place. 739 00:39:04,024 --> 00:39:06,495 Speaker 1: So I think there is a fundamental underpinning to the 740 00:39:06,504 --> 00:39:10,495 Speaker 1: growth story than just G PM feeding exports. But my 741 00:39:10,504 --> 00:39:13,625 Speaker 1: follow up question was on your observation on low yield 742 00:39:13,635 --> 00:39:17,715 Speaker 1: uh Prakash the cherry trade story. Uh We had a 743 00:39:17,725 --> 00:39:19,734 Speaker 1: lot of, you know, borrowing yen and invest in us 744 00:39:19,745 --> 00:39:22,695 Speaker 1: tech story, uh We have elsewhere in Asia. There is 745 00:39:22,705 --> 00:39:26,614 Speaker 1: also elements of Cherry Trade. Uh how big or meaningful 746 00:39:26,625 --> 00:39:27,524 Speaker 1: is this dynamic? 747 00:39:29,399 --> 00:39:32,290 Speaker 2: Yeah, you know, it's a um it's, it's a very 748 00:39:32,300 --> 00:39:36,800 Speaker 2: difficult number to, to, to estimate. Um you know, I 749 00:39:36,810 --> 00:39:41,040 Speaker 2: think even our own estimates prior to, you know, what 750 00:39:41,050 --> 00:39:44,129 Speaker 2: happened in the first week of August. Uh I think 751 00:39:44,139 --> 00:39:45,739 Speaker 2: the moves that you see in the market were a 752 00:39:45,750 --> 00:39:48,689 Speaker 2: lot faster and a and a lot more wide ranging than, 753 00:39:48,699 --> 00:39:52,370 Speaker 2: than even we uh we had thought um I think 754 00:39:52,379 --> 00:39:56,199 Speaker 2: you do have a lot of um um hedge funds 755 00:39:56,209 --> 00:39:57,060 Speaker 2: that were 756 00:39:57,590 --> 00:40:03,169 Speaker 2: uh kind of funding themselves uh from yen. Um And in, 757 00:40:03,179 --> 00:40:06,729 Speaker 2: in the sense, you know, you, you uh whatever the 758 00:40:06,739 --> 00:40:09,120 Speaker 2: funds we're investing in, you know, we were quite broad 759 00:40:09,179 --> 00:40:12,159 Speaker 2: ranging um relative to just the usual, 760 00:40:12,439 --> 00:40:17,669 Speaker 2: you know, um Yen uh Mexico or Yen Brazil uh 761 00:40:17,679 --> 00:40:20,589 Speaker 2: type types of trades. Uh So I do think it is, 762 00:40:20,600 --> 00:40:23,469 Speaker 2: it is actually quite uh quite extensive. And I, and 763 00:40:23,479 --> 00:40:25,979 Speaker 2: I do think that it's uh uh it's, it's just very, 764 00:40:25,989 --> 00:40:28,790 Speaker 2: very hard to uh to monitor. I mean, if you 765 00:40:28,800 --> 00:40:29,780 Speaker 2: take the uh 766 00:40:30,669 --> 00:40:33,989 Speaker 2: Chinese Renminbi, for example, you know, it was a little 767 00:40:34,000 --> 00:40:38,169 Speaker 2: bit of a, of a crowded trade as well because, 768 00:40:38,540 --> 00:40:42,000 Speaker 2: you know, if you had the view that the uh 769 00:40:42,010 --> 00:40:45,820 Speaker 2: Chinese policy was going to be easing the economy is slowing, 770 00:40:46,100 --> 00:40:48,219 Speaker 2: uh that you had a view that the exchange rate 771 00:40:48,229 --> 00:40:51,520 Speaker 2: was going to depreciate. Uh you were paid to, to 772 00:40:51,530 --> 00:40:56,610 Speaker 2: hedge the currency. Um And so, you know, in that sense, 773 00:40:56,620 --> 00:40:58,448 Speaker 2: it was a pretty crowded trade. 774 00:40:58,929 --> 00:41:01,989 Speaker 2: Um And so when that, when that whole thing um 775 00:41:02,020 --> 00:41:05,379 Speaker 2: unwound uh you know, once again, you, you, you, you, 776 00:41:05,389 --> 00:41:08,909 Speaker 2: you get that appreciation in the, the Renminbi and, and so, 777 00:41:08,919 --> 00:41:11,439 Speaker 2: so I think, um you know, really trying to, to 778 00:41:11,449 --> 00:41:15,350 Speaker 2: trace down where, where all the flows were going uh 779 00:41:15,360 --> 00:41:20,409 Speaker 2: in this kind of more opaque market has just been 780 00:41:20,419 --> 00:41:22,659 Speaker 2: very difficult. Uh I mean, I think, I think even 781 00:41:22,669 --> 00:41:24,830 Speaker 2: Malaysian policymakers were surprised that 782 00:41:25,489 --> 00:41:29,879 Speaker 2: the extent to which the ring get appreciated, it was 783 00:41:29,889 --> 00:41:35,810 Speaker 2: actually quite a phenomenal thing. But as I was saying, 784 00:41:35,820 --> 00:41:38,129 Speaker 2: you know, it's, it's in line with what they were 785 00:41:38,139 --> 00:41:39,350 Speaker 2: trying to achieve and, 786 00:41:40,060 --> 00:41:42,550 Speaker 2: and I think um uh with that, it does take 787 00:41:42,560 --> 00:41:45,780 Speaker 2: actually it does give them uh as well as the 788 00:41:45,790 --> 00:41:48,050 Speaker 2: whole region. I think a lot more uh breeding room. 789 00:41:48,620 --> 00:41:49,169 Speaker 1: Yeah, just 790 00:41:49,179 --> 00:41:52,259 Speaker 1: things are becoming a little more balanced and I like 791 00:41:52,270 --> 00:41:54,949 Speaker 1: that very much too because you might remember from our 792 00:41:54,959 --> 00:41:58,459 Speaker 1: graduate school days, this paper by Guillermo Calvo called varieties 793 00:41:58,469 --> 00:42:01,009 Speaker 1: of capital market crisis. I think that was the first 794 00:42:01,020 --> 00:42:04,429 Speaker 1: paper I read on uh uh sort of contemporary financial 795 00:42:04,439 --> 00:42:06,590 Speaker 1: crisis building on, you know, the stuff that Putman had 796 00:42:06,600 --> 00:42:08,239 Speaker 1: done earlier in that previous decade. 797 00:42:08,560 --> 00:42:11,100 Speaker 1: So one point that have made was that, you know, 798 00:42:11,110 --> 00:42:14,629 Speaker 1: portfolio managers have a bunch of positions and they try 799 00:42:14,639 --> 00:42:18,159 Speaker 1: to balance it. And sometimes when they have a negative 800 00:42:18,169 --> 00:42:20,779 Speaker 1: view on one asset, it manifests in them selling in 801 00:42:20,790 --> 00:42:23,770 Speaker 1: other assets. So that rebalancing approach then manifests in all 802 00:42:23,780 --> 00:42:24,300 Speaker 1: sorts of things. 803 00:42:24,590 --> 00:42:26,540 Speaker 1: So the reason I bring it up is because it 804 00:42:26,550 --> 00:42:28,810 Speaker 1: is really through the next two questions and these are 805 00:42:28,820 --> 00:42:31,310 Speaker 1: the two final questions of this discussion. So first one 806 00:42:31,320 --> 00:42:34,969 Speaker 1: is on gold, the kind of rise in gold that 807 00:42:34,979 --> 00:42:38,658 Speaker 1: we have seen, does it reflect this portfolio rebalancing thing 808 00:42:38,669 --> 00:42:40,370 Speaker 1: that KVO was alluding to in his paper? 809 00:42:42,239 --> 00:42:46,770 Speaker 2: Um iii I think actually it um uh the drivers 810 00:42:46,780 --> 00:42:50,379 Speaker 2: that I feel are are slightly different. Um you know, 811 00:42:50,389 --> 00:42:52,138 Speaker 2: prior to 812 00:42:52,780 --> 00:42:57,600 Speaker 2: 2022 you know, there was a very tight link between 813 00:42:57,780 --> 00:43:02,770 Speaker 2: um gold and uh and real interest rates. Um and, and, 814 00:43:02,780 --> 00:43:05,229 Speaker 2: you know, for, for right reasons, right? You know, I mean, 815 00:43:05,239 --> 00:43:07,310 Speaker 2: um you could, you could think of real interest rates 816 00:43:07,320 --> 00:43:10,560 Speaker 2: as being the kind of opportunity cost of, of holding gold, 817 00:43:10,570 --> 00:43:13,469 Speaker 2: which doesn't give you any yield. And so when, when, 818 00:43:13,479 --> 00:43:15,429 Speaker 2: when interest rates go up, actually the price of gold 819 00:43:15,439 --> 00:43:22,260 Speaker 2: goes down. Um And then, you know, just after, uh the, 820 00:43:22,889 --> 00:43:27,189 Speaker 2: uh you know, I would say about March 2022 you, 821 00:43:27,199 --> 00:43:31,550 Speaker 2: you had this, this um this decoupling. Um Now it's, 822 00:43:31,560 --> 00:43:35,189 Speaker 2: it's interesting because around that time, uh of course, the 823 00:43:35,199 --> 00:43:38,609 Speaker 2: fed started hiking uh rates. And so, you know, the 824 00:43:38,620 --> 00:43:41,659 Speaker 2: presumption was that actually gold prices were, were, were gonna fall, 825 00:43:42,250 --> 00:43:45,909 Speaker 2: but he also had the Russian invasion of uh of Ukraine. 826 00:43:46,399 --> 00:43:49,780 Speaker 2: Um And, you know, I think that in a way 827 00:43:49,790 --> 00:43:54,489 Speaker 2: catalyzed AAA new driver uh for gold, which I think 828 00:43:54,500 --> 00:43:57,638 Speaker 2: was very different from the traditional drivers, which is real 829 00:43:57,649 --> 00:44:00,750 Speaker 2: interest rates and, and the dollar. Um And, and this 830 00:44:00,760 --> 00:44:03,428 Speaker 2: driver was actually from, from central banks. 831 00:44:03,909 --> 00:44:06,830 Speaker 2: Um And so if you look across uh you know, 832 00:44:06,840 --> 00:44:08,989 Speaker 2: the data that comes up from the World Gold Council, 833 00:44:09,000 --> 00:44:11,929 Speaker 2: you know, demand for gold by central banks actually really, 834 00:44:11,939 --> 00:44:14,020 Speaker 2: really shut up uh from that period. 835 00:44:14,840 --> 00:44:18,409 Speaker 2: And uh and I think that at the margin has been, 836 00:44:18,620 --> 00:44:21,820 Speaker 2: you know, uh kind of a big, a big support 837 00:44:21,830 --> 00:44:25,879 Speaker 2: for um uh for gold. Uh which is interesting because 838 00:44:25,889 --> 00:44:30,689 Speaker 2: we look at the uh ETF flows um on um 839 00:44:31,100 --> 00:44:33,638 Speaker 2: uh like GLD, for example, actually, actually that, that's been, 840 00:44:33,649 --> 00:44:37,659 Speaker 2: that's been flat to, to kind of uh uh coming down. So, 841 00:44:37,669 --> 00:44:40,100 Speaker 2: so um it has been, I think a lot more 842 00:44:40,110 --> 00:44:42,439 Speaker 2: central bank flows and then recently a bit more retail 843 00:44:42,449 --> 00:44:44,379 Speaker 2: flows as well. Um uh 844 00:44:44,780 --> 00:44:47,959 Speaker 2: So I think it's uh it's been a very different 845 00:44:47,969 --> 00:44:52,620 Speaker 2: uh uh driver and uh to, to a certain extent, 846 00:44:52,629 --> 00:44:55,389 Speaker 2: I think probably keying off a bit more on kind 847 00:44:55,399 --> 00:45:01,139 Speaker 2: of geopolitical uh risk uh than this about, about portfolio 848 00:45:01,149 --> 00:45:06,280 Speaker 2: uh rebalance. But, you know, II I uh uh of late, you, 849 00:45:06,290 --> 00:45:08,428 Speaker 2: you do find that the correlation has kind of come 850 00:45:08,439 --> 00:45:10,759 Speaker 2: back a little bit more. Uh But with the dollar, 851 00:45:11,179 --> 00:45:14,469 Speaker 2: um so, you know, as the dollar has been falling, 852 00:45:14,760 --> 00:45:17,479 Speaker 2: um you know, you've seen that, that kind of being a, 853 00:45:17,489 --> 00:45:20,010 Speaker 2: a support for uh for gold, 854 00:45:20,830 --> 00:45:24,110 Speaker 1: right? It's like a headset win tails, you lose for 855 00:45:24,120 --> 00:45:26,770 Speaker 1: gold rates go up, the goal goes up because of 856 00:45:26,820 --> 00:45:29,600 Speaker 1: your political concerns and rates come down, then the old 857 00:45:29,610 --> 00:45:32,969 Speaker 1: relationship comes back. Uh OK. So this, this brings me 858 00:45:32,979 --> 00:45:36,820 Speaker 1: to the portfolio construction question. Uh Prakash. Uh How do 859 00:45:36,830 --> 00:45:39,699 Speaker 1: you design a portfolio? Uh given everything that we just 860 00:45:39,709 --> 00:45:42,330 Speaker 1: talked about across uh duration and asset classes? 861 00:45:43,300 --> 00:45:45,290 Speaker 2: No, no, I think that's a, that's a good question. 862 00:45:45,300 --> 00:45:47,339 Speaker 2: I mean, you know, at least uh in a way that's, 863 00:45:47,350 --> 00:45:51,090 Speaker 2: that's where the rubber hits the road. Um I think, 864 00:45:51,100 --> 00:45:53,928 Speaker 2: uh you know, we've just kind of been through a, 865 00:45:54,479 --> 00:46:00,850 Speaker 2: a very unique decade, right where um actually diversification uh 866 00:46:00,919 --> 00:46:05,699 Speaker 2: hasn't paid off at all. Um You know, not only 867 00:46:05,760 --> 00:46:08,860 Speaker 2: would you, uh, would you have wanted to be in 868 00:46:08,870 --> 00:46:12,800 Speaker 2: a fully equity centric portfolio? But actually you wanted to 869 00:46:12,810 --> 00:46:16,080 Speaker 2: be fully in the US. Um And in fact, you know, 870 00:46:16,090 --> 00:46:19,620 Speaker 2: I think most managers, you go around talking to the 871 00:46:19,629 --> 00:46:20,260 Speaker 2: question is 872 00:46:20,629 --> 00:46:24,520 Speaker 2: why, why bother diversifying, uh why bother buying anything other than, 873 00:46:24,530 --> 00:46:27,810 Speaker 2: than the SNP. Um But, but I do think that, 874 00:46:27,820 --> 00:46:31,689 Speaker 2: that we have kind of uh gotten to a point where, um, 875 00:46:31,699 --> 00:46:34,590 Speaker 2: you know, diversification, I think is, is actually gonna uh 876 00:46:34,600 --> 00:46:38,439 Speaker 2: matter uh uh a lot more, you know, the one, 877 00:46:38,449 --> 00:46:41,209 Speaker 2: the one positive thing I, I take away from the 878 00:46:41,939 --> 00:46:45,250 Speaker 2: episode that we saw in, uh in early August is that, 879 00:46:45,439 --> 00:46:48,839 Speaker 2: you know, when actually faced with the growth scare, uh 880 00:46:48,850 --> 00:46:51,419 Speaker 2: you know, where, where the market was, you know, for, 881 00:46:51,729 --> 00:46:54,189 Speaker 2: you can argue reasonable, not reasonable, putting more weight on 882 00:46:54,199 --> 00:46:58,600 Speaker 2: a recession scenario, actually, bonds, bonds did their job, uh and, 883 00:46:58,610 --> 00:47:02,810 Speaker 2: and rates uh rates uh rallied, right. So, so I think, 884 00:47:02,820 --> 00:47:05,689 Speaker 2: uh uh what we, you know, we are thinking about 885 00:47:05,699 --> 00:47:08,080 Speaker 2: and what I think, uh uh most investors are thinking 886 00:47:08,090 --> 00:47:10,479 Speaker 2: about is actually that this is the time, 887 00:47:10,790 --> 00:47:13,399 Speaker 2: uh that you do actually want to do a lot 888 00:47:13,409 --> 00:47:18,850 Speaker 2: more uh diversification. Um you know, part of the uh 889 00:47:18,949 --> 00:47:22,899 Speaker 2: uh uh story in a way, even if you have 890 00:47:22,909 --> 00:47:26,489 Speaker 2: a um kind of a soft landing uh baseline scenario, 891 00:47:26,860 --> 00:47:31,939 Speaker 2: risk premier are actually quite uh quite tight. Um So, 892 00:47:31,949 --> 00:47:35,030 Speaker 2: you know, whatever measure of, of valuations you want to 893 00:47:35,040 --> 00:47:38,580 Speaker 2: do for the US relative to where real rates are. 894 00:47:38,929 --> 00:47:41,820 Speaker 2: Uh Even if you look at credit spreads uh by 895 00:47:41,830 --> 00:47:44,699 Speaker 2: and large, actually, you're not getting compensated for uh for 896 00:47:44,709 --> 00:47:47,388 Speaker 2: a lot of risk. Uh But I do think actually 897 00:47:47,399 --> 00:47:51,189 Speaker 2: um uh you know, kind of diversifying uh the portfolio 898 00:47:51,449 --> 00:47:54,110 Speaker 2: and kind of going back to the discussion on, on 899 00:47:54,120 --> 00:47:54,429 Speaker 2: the 900 00:47:54,510 --> 00:47:57,860 Speaker 2: emerging markets. You know, if you do get that soft 901 00:47:57,870 --> 00:48:02,080 Speaker 2: landing scenario where the fed is cutting because inflation is 902 00:48:02,090 --> 00:48:06,370 Speaker 2: falling rather than, than growth and the dollar comes down. 903 00:48:06,379 --> 00:48:09,049 Speaker 2: I mean, historically, this has been a great period for, 904 00:48:09,060 --> 00:48:09,969 Speaker 2: for Ems. 905 00:48:10,659 --> 00:48:13,489 Speaker 2: Um So I think, I think that's one aspect, the 906 00:48:13,500 --> 00:48:15,750 Speaker 2: other one I think is that, you know, some of 907 00:48:15,760 --> 00:48:18,839 Speaker 2: the most structural forces that, um you know, we didn't, 908 00:48:18,850 --> 00:48:20,590 Speaker 2: we didn't get a chance to talk about, you know, 909 00:48:20,600 --> 00:48:21,239 Speaker 2: whether it's 910 00:48:21,949 --> 00:48:25,879 Speaker 2: climate change and the energy transition, uh a whole range 911 00:48:25,889 --> 00:48:30,350 Speaker 2: of industrial policy, uh you know, build out of Capex 912 00:48:30,360 --> 00:48:33,520 Speaker 2: related to A I, you know, a lot of these things, 913 00:48:33,699 --> 00:48:37,169 Speaker 2: um you know, in a way, push out the investment 914 00:48:37,179 --> 00:48:41,669 Speaker 2: curve a lot more. Um And then, you know, when 915 00:48:41,679 --> 00:48:44,239 Speaker 2: you think about how much the governments are spending, you know, 916 00:48:44,250 --> 00:48:46,760 Speaker 2: we bring back the the savings curve. So 917 00:48:47,320 --> 00:48:49,239 Speaker 2: they put two economies in a room and you always 918 00:48:49,250 --> 00:48:52,489 Speaker 2: have to talk about uh curves at some point. Um So, 919 00:48:52,500 --> 00:48:54,370 Speaker 2: so I think if you look at that intersection between 920 00:48:54,379 --> 00:48:57,100 Speaker 2: savings and investment. Uh you know, I, I think in 921 00:48:57,110 --> 00:48:59,979 Speaker 2: general rates uh uh uh in terms of equilibrium a 922 00:48:59,989 --> 00:49:02,040 Speaker 2: bit higher, but I think in general they are also 923 00:49:02,050 --> 00:49:03,830 Speaker 2: a bit more inflationary. Uh 924 00:49:03,935 --> 00:49:06,754 Speaker 2: um And so, you know, finding ways to protect your 925 00:49:06,764 --> 00:49:11,584 Speaker 2: portfolio from higher inflation, uh I think is uh a 926 00:49:11,594 --> 00:49:15,134 Speaker 2: place uh that, that you should be focused. And I think, 927 00:49:15,145 --> 00:49:17,404 Speaker 2: you know, I know we said uh heads you in 928 00:49:17,415 --> 00:49:19,645 Speaker 2: uh tails you in a thing for gold. But, but 929 00:49:19,655 --> 00:49:22,084 Speaker 2: I do think actually, uh you know, in that, in 930 00:49:22,094 --> 00:49:23,875 Speaker 2: that scenario of um 931 00:49:24,600 --> 00:49:27,840 Speaker 2: uh you know, kind of a more monetary led uh inflation, 932 00:49:27,850 --> 00:49:31,250 Speaker 2: I think gold actually uh does well. Uh but I 933 00:49:31,350 --> 00:49:33,879 Speaker 2: also think, um you know, adding a little bit more 934 00:49:33,909 --> 00:49:38,709 Speaker 2: uh commodities, real assets, I think to the portfolio. Uh 935 00:49:38,719 --> 00:49:40,820 Speaker 2: I think do make a lot of sense of this 936 00:49:41,169 --> 00:49:45,060 Speaker 2: uh uh in this environment because um you know, we 937 00:49:45,070 --> 00:49:48,299 Speaker 2: are likely to be faced with a lot more supply shortages. 938 00:49:48,709 --> 00:49:51,800 Speaker 2: Um And, you know, this is the kind of uh 939 00:49:51,810 --> 00:49:52,899 Speaker 2: environment where 940 00:49:53,300 --> 00:49:56,669 Speaker 2: I think getting that bit more um uh 941 00:49:57,330 --> 00:50:01,790 Speaker 2: balance or support for your kind of uh core equity 942 00:50:01,800 --> 00:50:04,820 Speaker 2: uh position, I think will, will, will pay off a 943 00:50:04,830 --> 00:50:05,379 Speaker 2: lot more. 944 00:50:06,280 --> 00:50:11,069 Speaker 1: I think that's a great astute observation Prakash because when 945 00:50:11,080 --> 00:50:15,290 Speaker 1: I talk to investors to your point that uh dominant 946 00:50:15,300 --> 00:50:16,820 Speaker 1: view is, you know, what's the point of, you know, 947 00:50:16,830 --> 00:50:20,020 Speaker 1: investing beyond the US, it's been so great. Uh But 948 00:50:20,389 --> 00:50:21,899 Speaker 1: the sands are shifting 949 00:50:22,290 --> 00:50:25,040 Speaker 1: and if we don't take positioning now, it could be that, 950 00:50:25,050 --> 00:50:26,479 Speaker 1: you know, we look back and say, well, this was 951 00:50:26,489 --> 00:50:29,179 Speaker 1: the time to make the adjustment. So I really appreciate 952 00:50:29,189 --> 00:50:32,229 Speaker 1: your view on that uh progress. Final, final question is 953 00:50:32,239 --> 00:50:36,350 Speaker 1: on the private space, the public markets have done their thing. 954 00:50:36,360 --> 00:50:38,979 Speaker 1: We've seen good equity performance in the West. We've seen 955 00:50:38,989 --> 00:50:41,959 Speaker 1: fixed income rally around expectation of stump soft lending. 956 00:50:42,199 --> 00:50:45,350 Speaker 1: Uh But then there's this intrigue around whether there's a 957 00:50:45,360 --> 00:50:47,770 Speaker 1: lot of leverage build up in the private markets because 958 00:50:47,780 --> 00:50:49,899 Speaker 1: they are not subject to market to market. Maybe we 959 00:50:49,909 --> 00:50:52,830 Speaker 1: don't really know how big the damage is. Uh But 960 00:50:52,840 --> 00:50:56,669 Speaker 1: so far with almost two years and counting of high rates, 961 00:50:56,790 --> 00:50:58,959 Speaker 1: we haven't seen any accidents in the private space. So 962 00:50:58,969 --> 00:51:00,129 Speaker 1: are we out of the woods? 963 00:51:01,879 --> 00:51:04,439 Speaker 2: Yeah, look, I mean, uh um in some sense, I 964 00:51:04,449 --> 00:51:07,649 Speaker 2: think that the rebound in the public market space has 965 00:51:07,659 --> 00:51:10,709 Speaker 2: uh has, has helped uh just in terms of, of 966 00:51:10,719 --> 00:51:14,888 Speaker 2: anchoring valuations uh for the for the private space. But 967 00:51:14,899 --> 00:51:18,139 Speaker 2: I think going forward, uh if you think of um 968 00:51:18,449 --> 00:51:22,199 Speaker 2: uh you know, returns uh in private assets coming from, 969 00:51:22,209 --> 00:51:26,469 Speaker 2: as you mentioned, uh leverage second is actually uh kind 970 00:51:26,479 --> 00:51:28,689 Speaker 2: of valuation uh rating 971 00:51:29,199 --> 00:51:32,820 Speaker 2: and the third is actually kind of value creation, you know, 972 00:51:32,830 --> 00:51:37,439 Speaker 2: kind of getting better uh ebita growth. Uh What we're 973 00:51:37,449 --> 00:51:39,669 Speaker 2: seeing is that we don't you know, you just can't 974 00:51:39,679 --> 00:51:43,139 Speaker 2: rely on the first two forces anymore. Uh And it 975 00:51:43,149 --> 00:51:46,939 Speaker 2: really has to be about, about value creation. Um So 976 00:51:46,949 --> 00:51:49,149 Speaker 2: I think that that would be the big uh challenge 977 00:51:49,159 --> 00:51:53,100 Speaker 2: for the private market space. Uh Is that if you 978 00:51:53,110 --> 00:51:55,580 Speaker 2: were actually just resorting to the first two 979 00:51:55,860 --> 00:51:58,520 Speaker 2: uh uh pieces, uh you're just not gonna get the 980 00:51:58,530 --> 00:52:01,000 Speaker 2: kind of growth that uh that you did uh uh 981 00:52:01,010 --> 00:52:03,320 Speaker 2: in the past. Uh So, what we've been doing actually 982 00:52:03,330 --> 00:52:05,969 Speaker 2: with a lot of our portfolio companies um as well 983 00:52:05,979 --> 00:52:09,428 Speaker 2: as uh via the, the GPS is actually putting more 984 00:52:09,439 --> 00:52:13,110 Speaker 2: emphasis on uh on, on the 3rd, 3rd part. And, 985 00:52:13,120 --> 00:52:14,629 Speaker 2: and this is, I think the, 986 00:52:15,060 --> 00:52:20,419 Speaker 2: the, the kind of true strength of, of uh private markets, 987 00:52:20,429 --> 00:52:25,840 Speaker 2: particularly private equity in that you actually have a controlled premium, right? You, you, 988 00:52:25,850 --> 00:52:28,560 Speaker 2: you do have the ability to uh to, to make 989 00:52:28,570 --> 00:52:32,189 Speaker 2: those changes and actually help create that uh that value. 990 00:52:32,590 --> 00:52:34,929 Speaker 2: Um So it is, it is uh going to be 991 00:52:34,939 --> 00:52:37,779 Speaker 2: a tough period, I think uh uh going forward for 992 00:52:37,790 --> 00:52:41,689 Speaker 2: the space. Um But I think it will actually lead 993 00:52:41,699 --> 00:52:44,169 Speaker 2: to in a way, the way I think about it, 994 00:52:44,179 --> 00:52:49,449 Speaker 2: actually a more sustainable uh growth trajectory for um uh for, 995 00:52:49,459 --> 00:52:50,770 Speaker 2: for this, this universe. 996 00:52:51,989 --> 00:52:55,199 Speaker 1: That's a very good point to end. Uh PS Kan. 997 00:52:55,340 --> 00:52:57,509 Speaker 1: Thank you very much for your time and insights. Thanks 998 00:52:57,520 --> 00:52:58,649 Speaker 1: for coming back to COVID time. 999 00:52:59,229 --> 00:53:00,839 Speaker 2: Thanks tomorrow. Take care. 1000 00:53:01,270 --> 00:53:04,110 Speaker 1: Good to have you. Thanks to our listeners and viewers 1001 00:53:04,120 --> 00:53:06,379 Speaker 1: as well. Copy Time was produced by Ken Delbridge at 1002 00:53:06,429 --> 00:53:10,260 Speaker 1: Spy studios. 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