1 00:00:06,059 --> 00:00:09,100 Speaker 1: Welcome to COVID time, podcast series on markets and economies 2 00:00:09,100 --> 00:00:12,340 Speaker 1: from DBS Group Research. I'm Tebek, chief economist. Welcoming you 3 00:00:12,340 --> 00:00:15,210 Speaker 1: to our 162nd episode. 4 00:00:16,010 --> 00:00:19,250 Speaker 1: Today, we will have the chief economist of AMRO on 5 00:00:19,250 --> 00:00:22,750 Speaker 1: our podcast. What is AMRO? It is the ASEAN + 6 00:00:22,750 --> 00:00:26,739 Speaker 1: 3 Macroeconomic Research Office. It was established back in 2011 7 00:00:26,850 --> 00:00:31,170 Speaker 1: by the ASEAN +3 finance ministers. AMR's aim is to 8 00:00:31,170 --> 00:00:34,799 Speaker 1: contribute to macro and financial resilience and stability in the region. 9 00:00:35,130 --> 00:00:38,360 Speaker 1: It comprises of 10 member states, all the ASEAN countries, 10 00:00:38,569 --> 00:00:41,049 Speaker 1: plus China, Hong Kong, Japan, and South Korea. 11 00:00:41,848 --> 00:00:43,970 Speaker 1: This is the 2nd time we've had the pleasure of 12 00:00:43,970 --> 00:00:47,119 Speaker 1: hearing from Ambros's chief economist, but our guest is not 13 00:00:47,119 --> 00:00:50,168 Speaker 1: a return guest. Dong He took over this position just 14 00:00:50,168 --> 00:00:52,610 Speaker 1: a few months ago. He has had a 3 decade 15 00:00:52,610 --> 00:00:55,610 Speaker 1: plus career bookended with long stints in the world of 16 00:00:55,610 --> 00:00:59,000 Speaker 1: multilateral surveillance, both at the World Bank and the IMF. 17 00:00:59,409 --> 00:01:02,119 Speaker 1: In between, there was also a decade at HKMA, Hong 18 00:01:02,119 --> 00:01:03,330 Speaker 1: Kong Monetary Authority. 19 00:01:03,889 --> 00:01:06,830 Speaker 1: I've known Dong primarily as a financial sector expert, having 20 00:01:06,830 --> 00:01:09,510 Speaker 1: worked with him in the IMF many years ago. Now 21 00:01:09,510 --> 00:01:12,959 Speaker 1: his hat is even bigger, overseeing Amro's country and regional surveillance, 22 00:01:13,190 --> 00:01:16,879 Speaker 1: as well as research activities related to ASEAN + 3 economies. Donngha, 23 00:01:17,339 --> 00:01:17,989 Speaker 1: welcome to COVID 24 00:01:17,989 --> 00:01:20,029 Speaker 2: time. Hi, T, very good to be here. 25 00:01:20,139 --> 00:01:22,879 Speaker 1: Uh, great to have you and welcome to Singapore, Don. 26 00:01:22,959 --> 00:01:25,169 Speaker 1: This is the first time you're living in this country. Indeed, 27 00:01:25,319 --> 00:01:28,120 Speaker 2: I visited here before, but I never lived here, so 28 00:01:28,120 --> 00:01:30,169 Speaker 2: it's been very interesting to be here. 29 00:01:30,360 --> 00:01:32,330 Speaker 1: Very, very pleased to have you in our, our neck 30 00:01:32,330 --> 00:01:34,680 Speaker 1: of the woods. Dong, I will just cut right into 31 00:01:34,680 --> 00:01:36,919 Speaker 1: this discussion. We have a lot to cover. How do 32 00:01:36,919 --> 00:01:40,150 Speaker 1: you see the impact of US tariffs and policy uncertainty 33 00:01:40,489 --> 00:01:42,800 Speaker 1: on trade and investment flows in the region? 34 00:01:43,540 --> 00:01:46,379 Speaker 2: Certainly it was a very big shock for the uh 35 00:01:46,379 --> 00:01:49,970 Speaker 2: for the economies in this region when the US administration 36 00:01:50,339 --> 00:01:55,139 Speaker 2: started introducing tariffs and all sorts of uncertainties. Uh, but 37 00:01:55,139 --> 00:01:58,059 Speaker 2: the outturn so far in a certain second, in the 38 00:01:58,059 --> 00:02:01,290 Speaker 2: first half of the year, uh, was better than expected. 39 00:02:01,500 --> 00:02:04,309 Speaker 2: I think a number of things were going on. Um, 40 00:02:04,379 --> 00:02:06,910 Speaker 2: if we step back a little bit thinking about 41 00:02:07,220 --> 00:02:11,699 Speaker 2: Uh, trade theory, how a shock, uh, a tariff shock 42 00:02:11,699 --> 00:02:15,538 Speaker 2: would affect the economies. So for the, uh, affected countries, 43 00:02:15,619 --> 00:02:19,698 Speaker 2: it's primarily a demand shock. Uh, so there is the 44 00:02:19,699 --> 00:02:22,740 Speaker 2: direct part and also the indirect part. The direct part, 45 00:02:22,750 --> 00:02:26,889 Speaker 2: of course, uh, if the tariffs lead to higher prices, uh, 46 00:02:26,899 --> 00:02:29,960 Speaker 2: that might reduce the demand in terms of the quantities, 47 00:02:29,979 --> 00:02:32,860 Speaker 2: you can sell your goods. Uh and uh that would 48 00:02:32,860 --> 00:02:35,750 Speaker 2: be the impact of uh the direct um 49 00:02:36,179 --> 00:02:40,630 Speaker 2: Uh, impact. But there's a second round in the sense that, uh, the, 50 00:02:40,660 --> 00:02:46,059 Speaker 2: if the imposing countries uh economy uh is hit by 51 00:02:46,059 --> 00:02:49,940 Speaker 2: the tariff itself, that would lead to a reduction in 52 00:02:49,940 --> 00:02:53,380 Speaker 2: the demand for other goods and services more broadly. So 53 00:02:53,380 --> 00:02:56,928 Speaker 2: when we think about the uh ASEAN economies, let's say, 54 00:02:57,139 --> 00:03:01,570 Speaker 2: these are very small, uh, open economies. Uh, so the, uh, 55 00:03:01,580 --> 00:03:02,269 Speaker 2: the shock. 56 00:03:02,570 --> 00:03:05,949 Speaker 2: Uh, in terms of reduced the demand for their goods 57 00:03:05,949 --> 00:03:09,898 Speaker 2: and services, is quite evident. Uh, so that if you 58 00:03:09,899 --> 00:03:12,710 Speaker 2: just do all sorts of simulations, you can see the 59 00:03:12,710 --> 00:03:13,869 Speaker 2: impact is quite big. 60 00:03:15,020 --> 00:03:18,529 Speaker 2: But I think the impact on the US economy itself 61 00:03:18,820 --> 00:03:23,649 Speaker 2: is quite interesting because actually the theory says, uh, the impact, 62 00:03:23,820 --> 00:03:29,130 Speaker 2: the net impact on the imposing country is not that obvious. Uh, 63 00:03:29,258 --> 00:03:33,970 Speaker 2: the empirical literature says that output usually is negative. 64 00:03:34,419 --> 00:03:38,398 Speaker 2: Uh, but on inflation, it depends on many things. So, 65 00:03:38,410 --> 00:03:41,539 Speaker 2: so far, we know in the US inflation has shown 66 00:03:41,539 --> 00:03:44,860 Speaker 2: some inertia, but it has not shoot up, has not 67 00:03:44,860 --> 00:03:49,369 Speaker 2: shot up as, as, uh, originally sort of feared. So 68 00:03:49,369 --> 00:03:51,179 Speaker 2: a number of things going on, this is on the 69 00:03:51,179 --> 00:03:54,770 Speaker 2: negative side. On the positive side, of course, as you know, 70 00:03:54,919 --> 00:03:58,649 Speaker 2: there's this is the AI uh sort of a boom time. 71 00:03:58,960 --> 00:04:01,759 Speaker 2: Uh, so what we have seen is that the Asia 72 00:04:01,759 --> 00:04:06,000 Speaker 2: Pacific economies have been very much, of course, uh, in 73 00:04:06,000 --> 00:04:11,919 Speaker 2: the center of AI related semiconductors in the electronics, electronics goods, 74 00:04:12,160 --> 00:04:16,200 Speaker 2: and their exports actually has been very strong. Uh it's 75 00:04:16,200 --> 00:04:19,159 Speaker 2: in the first half of the year, the global chips 76 00:04:19,160 --> 00:04:22,549 Speaker 2: market exports have been growing like almost 20%. 77 00:04:23,220 --> 00:04:26,410 Speaker 2: Uh, so you have the negative side of the trade, uh, uh, 78 00:04:26,420 --> 00:04:32,619 Speaker 2: associated tariffs, uh, uh, and uncertainties, but on the positive side, 79 00:04:32,660 --> 00:04:37,809 Speaker 2: you have, uh, AI led export growth. So on that, uh, 80 00:04:37,820 --> 00:04:41,790 Speaker 2: the impact, uh, has not been, uh, that great, 81 00:04:42,140 --> 00:04:45,058 Speaker 1: not yet, not yet. So don't, let's stay on the 82 00:04:45,059 --> 00:04:46,660 Speaker 1: trade side. I want to talk to you about the 83 00:04:46,660 --> 00:04:49,820 Speaker 1: regional investment cycle around AI a little later, but staying 84 00:04:49,820 --> 00:04:52,630 Speaker 1: on the trade side a little longer, um, the 85 00:04:53,089 --> 00:04:56,029 Speaker 1: Key issue to me is the uncertainty that the deal 86 00:04:56,029 --> 00:04:58,890 Speaker 1: that the US offers a specific country anywhere in the world, 87 00:04:58,899 --> 00:05:02,619 Speaker 1: not just Asia, may not be the deal that stays 88 00:05:02,619 --> 00:05:05,420 Speaker 1: a month from now, 2 months from now. There's a 89 00:05:05,420 --> 00:05:10,099 Speaker 1: degree of brinkmanship, uh, some degree of bargaining back and forth, 90 00:05:10,178 --> 00:05:12,940 Speaker 1: so the tariffs are used as a bargaining chip to 91 00:05:12,940 --> 00:05:13,420 Speaker 1: some extent. 92 00:05:14,070 --> 00:05:18,029 Speaker 1: With this volatility of outcome with respect to tariff, which typically, 93 00:05:18,149 --> 00:05:21,229 Speaker 1: you know, sticks and stays, it's negotiated or imposed and 94 00:05:21,230 --> 00:05:22,670 Speaker 1: then stays there for a long time, and now it 95 00:05:22,670 --> 00:05:24,869 Speaker 1: goes up and down through the course of this year 96 00:05:24,869 --> 00:05:27,799 Speaker 1: we've seen low tariffs and high tariffs and then medium tariffs. 97 00:05:28,029 --> 00:05:31,029 Speaker 1: So what is your sense of the investment environment in 98 00:05:31,029 --> 00:05:33,910 Speaker 1: the region faced with these sort of volatility and tariffs? 99 00:05:33,950 --> 00:05:38,059 Speaker 1: How are countries and corporations dealing with the uncertainty? 100 00:05:38,470 --> 00:05:41,309 Speaker 2: Very good question. Actually, when we think about the impact. 101 00:05:41,880 --> 00:05:45,959 Speaker 2: Of tariffs and uncertainties. You need, we need to differentiate 102 00:05:45,959 --> 00:05:49,399 Speaker 2: between short term impact and the longer term or medium-term impact. 103 00:05:49,720 --> 00:05:53,459 Speaker 2: So the medium-term impact is really to create incentives for 104 00:05:53,459 --> 00:05:56,919 Speaker 2: firms to deal with such uncertainties and maybe set up 105 00:05:56,920 --> 00:06:01,909 Speaker 2: or reorient their production networks, uh, that will become more 106 00:06:01,910 --> 00:06:05,799 Speaker 2: resilient in the future, uh, because you cannot assume this 107 00:06:05,799 --> 00:06:08,959 Speaker 2: sort of uncertainty will go away. Uh, so what we 108 00:06:08,959 --> 00:06:10,190 Speaker 2: have seen is that 109 00:06:10,410 --> 00:06:15,549 Speaker 2: Um, there are, uh, actually commitments or applications for FDI 110 00:06:15,549 --> 00:06:19,149 Speaker 2: have really been growing tremendously in the region in the 111 00:06:19,149 --> 00:06:23,839 Speaker 2: Southeast Asian, uh, in ASEAN economies. Uh, many have seen, uh, 112 00:06:23,869 --> 00:06:27,230 Speaker 2: you know, 20%, 30%, even higher than that sort of 113 00:06:27,230 --> 00:06:29,380 Speaker 2: growth in the first half of the year. 114 00:06:29,690 --> 00:06:34,880 Speaker 2: And uh if these commitments or these applications become realized, 115 00:06:35,130 --> 00:06:38,488 Speaker 2: then one upside to our outlook is going to be 116 00:06:38,488 --> 00:06:43,118 Speaker 2: higher investment growth in these economies. So behind this, of course, uh, 117 00:06:43,130 --> 00:06:48,119 Speaker 2: is that the firms have to rethink the production networks, uh, 118 00:06:48,130 --> 00:06:50,850 Speaker 2: in this sort of age of uncertainty and fragmentation, how 119 00:06:50,850 --> 00:06:53,329 Speaker 2: to become more resilient and we're going to see a 120 00:06:53,329 --> 00:06:55,200 Speaker 2: lot more intra-regional trade. 121 00:06:55,540 --> 00:07:00,690 Speaker 2: And uh that's also is a result of intra-regional investments, FDI, 122 00:07:00,899 --> 00:07:05,500 Speaker 2: not only intra-regional, actually, FDI even from the US and 123 00:07:05,500 --> 00:07:08,980 Speaker 2: from Europe have been going up very strongly, these applications 124 00:07:08,980 --> 00:07:09,339 Speaker 2: in the 125 00:07:09,339 --> 00:07:09,769 Speaker 2: region. 126 00:07:10,019 --> 00:07:13,690 Speaker 1: I fully concur, you know, Malaysia, even 56 years ago, 127 00:07:13,739 --> 00:07:15,380 Speaker 1: if we look at the balance of payments account. 128 00:07:15,679 --> 00:07:19,820 Speaker 1: FDI in tech related areas was very, very small. Sometimes 129 00:07:19,820 --> 00:07:23,540 Speaker 1: it'll be 0.25%. Now we're talking about billions, tens of 130 00:07:23,540 --> 00:07:26,140 Speaker 1: billions of dollars coming to just in Malaysia. We see 131 00:07:26,140 --> 00:07:29,290 Speaker 1: similar stories in Singapore, we see in Vietnam, but don't, 132 00:07:29,380 --> 00:07:30,940 Speaker 1: that takes me to this question that. 133 00:07:31,390 --> 00:07:33,579 Speaker 1: I'm not asking you to say who are the winners 134 00:07:33,579 --> 00:07:35,619 Speaker 1: or losers because I think it's way too premature and 135 00:07:35,619 --> 00:07:37,260 Speaker 1: I think winners or losers are not the right way 136 00:07:37,260 --> 00:07:39,660 Speaker 1: of looking at it. But just in terms of countries 137 00:07:39,660 --> 00:07:43,130 Speaker 1: that are managing better than others or receiving more investment 138 00:07:43,130 --> 00:07:46,140 Speaker 1: than others, where do you see most dynamism in the 139 00:07:46,140 --> 00:07:49,260 Speaker 1: region and where do you see somewhat lackluster dynamic? 140 00:07:49,950 --> 00:07:54,410 Speaker 2: I think um creating a very enabling environment is certainly 141 00:07:54,410 --> 00:07:58,250 Speaker 2: a very key task for the governments. Uh, you know, 142 00:07:58,609 --> 00:08:04,739 Speaker 2: spending on infrastructure, uh, make infrastructure networks much more efficient 143 00:08:05,049 --> 00:08:08,739 Speaker 2: and uh make your policy regimes predictable. Uh, and I 144 00:08:08,739 --> 00:08:14,410 Speaker 2: think these are very important, uh, uh factors. Uh, of course, uh, 145 00:08:14,489 --> 00:08:16,640 Speaker 2: you know, these markets tend to be small, so, 146 00:08:16,924 --> 00:08:22,084 Speaker 2: Countries have to think where in the broader production networks 147 00:08:22,084 --> 00:08:24,644 Speaker 2: they want to be in, right? There are, there are, 148 00:08:24,885 --> 00:08:29,684 Speaker 2: you know, cannot create one supply chain, uh, in your, 149 00:08:29,725 --> 00:08:32,164 Speaker 2: your own economy, you have to work with others in 150 00:08:32,164 --> 00:08:36,564 Speaker 2: the region. So collectively, uh, these countries also have to 151 00:08:36,565 --> 00:08:39,085 Speaker 2: work together to think what is a resilient. 152 00:08:39,598 --> 00:08:43,379 Speaker 2: Uh, resilient, uh, structure. I mean, one example I can 153 00:08:43,379 --> 00:08:46,818 Speaker 2: give that is really promising is you have heard of 154 00:08:46,818 --> 00:08:52,989 Speaker 2: the ASEAN power grid, right? So the countries are thinking, uh, um, what, 155 00:08:52,999 --> 00:08:55,679 Speaker 2: what is the right way to collaborate with each other 156 00:08:55,679 --> 00:09:00,299 Speaker 2: in terms of natural endowments, for example, Laos, Cambodia. 157 00:09:00,710 --> 00:09:05,299 Speaker 2: Um, these countries are very well endowed in terms of natural, uh, 158 00:09:05,320 --> 00:09:09,130 Speaker 2: you know, green power source resources. Uh, but of course, 159 00:09:09,320 --> 00:09:13,479 Speaker 2: they don't have necessarily have the resources, uh, and other 160 00:09:13,479 --> 00:09:16,069 Speaker 2: countries have the resources, so they have to work together 161 00:09:16,280 --> 00:09:20,599 Speaker 2: to think how to create a mutually beneficial type of 162 00:09:20,599 --> 00:09:23,238 Speaker 2: arrangements for green related. 163 00:09:23,659 --> 00:09:27,789 Speaker 2: Um, investments to take place, but that also enhanced the 164 00:09:27,789 --> 00:09:32,580 Speaker 2: infrastructure that would make uh investment attractive in these economies. 165 00:09:32,950 --> 00:09:34,989 Speaker 1: But John, when we talk about investment, whether it is 166 00:09:34,989 --> 00:09:38,390 Speaker 1: green investment or tech investment. Clearly, the largest pool of 167 00:09:38,390 --> 00:09:42,270 Speaker 1: capital and dynamism in those areas right now happens to 168 00:09:42,270 --> 00:09:42,750 Speaker 1: be China. 169 00:09:43,039 --> 00:09:45,210 Speaker 1: And we've seen over the last two decades, as China 170 00:09:45,210 --> 00:09:47,598 Speaker 1: has sort of moved up the value chain in manufacturing, 171 00:09:47,690 --> 00:09:51,260 Speaker 1: moved up as an economy, Chinese companies have been investing 172 00:09:51,260 --> 00:09:54,609 Speaker 1: overseas and we see that investment in many parts of 173 00:09:54,609 --> 00:09:57,049 Speaker 1: the region and in Southeast Asia but also elsewhere in 174 00:09:57,049 --> 00:10:01,530 Speaker 1: the world. So, despite the trade war, uh, trade war 175 00:10:01,530 --> 00:10:03,460 Speaker 1: or in spite of the trade war, do you see 176 00:10:03,460 --> 00:10:07,250 Speaker 1: the big capital surplus economies of the region, China number 177 00:10:07,250 --> 00:10:10,489 Speaker 1: one but also Japan, Korea, them remaining critical investors in 178 00:10:10,489 --> 00:10:11,169 Speaker 1: Southeast Asia? 179 00:10:11,739 --> 00:10:15,380 Speaker 2: Absolutely. Um, you know, in terms of just to give 180 00:10:15,380 --> 00:10:18,809 Speaker 2: you a number to start, uh, from, you know, in 181 00:10:18,809 --> 00:10:23,030 Speaker 2: terms of the stock of FDI in ASEAN, is about 182 00:10:23,030 --> 00:10:24,478 Speaker 2: 22 trillion. 183 00:10:24,900 --> 00:10:28,820 Speaker 2: Uh, US dollars. Uh, but the majority of that were 184 00:10:28,820 --> 00:10:31,580 Speaker 2: uh were a legacy of the past in the sense 185 00:10:31,580 --> 00:10:35,340 Speaker 2: that the largest sources came from the US and uh 186 00:10:35,340 --> 00:10:40,619 Speaker 2: and the Europe. And China, despite having uh uh grown 187 00:10:40,619 --> 00:10:43,780 Speaker 2: quite fast, the FDI from China in the, since the pandemic, 188 00:10:43,820 --> 00:10:47,260 Speaker 2: I think has been growing very fast. But in terms 189 00:10:47,260 --> 00:10:51,080 Speaker 2: of the stock is still less than 10%. It's only 9% as. 190 00:10:51,320 --> 00:10:54,369 Speaker 2: Compared to more than 40% coming from the US and 191 00:10:54,369 --> 00:10:57,830 Speaker 2: uh and the Europe. Uh, so the picture is changing. 192 00:10:57,840 --> 00:11:01,890 Speaker 2: I I think uh the Northeast Asian economies, Japan, Korea, 193 00:11:01,929 --> 00:11:05,520 Speaker 2: and China, they are climbing the innovation ladder very, very fast, 194 00:11:05,729 --> 00:11:09,130 Speaker 2: and they are already world leaders in some industries. So 195 00:11:09,130 --> 00:11:11,689 Speaker 2: that would be a very good source of uh of 196 00:11:11,690 --> 00:11:15,330 Speaker 2: know-how and the FDI will be very welcome uh in 197 00:11:15,330 --> 00:11:17,729 Speaker 2: these parts of, uh, in this part of the world. 198 00:11:18,140 --> 00:11:21,020 Speaker 2: Uh, so that, that, that is really a, a bright, uh, 199 00:11:21,140 --> 00:11:22,059 Speaker 2: a bright spot 200 00:11:22,059 --> 00:11:25,329 Speaker 1: there. So Dong, you began this conversation by saying that 201 00:11:25,820 --> 00:11:28,869 Speaker 1: despite what the models would say in terms of negative impact, 202 00:11:29,020 --> 00:11:31,929 Speaker 1: so far so good, maybe thanks to the AI cycle, 203 00:11:31,940 --> 00:11:33,900 Speaker 1: but generally speaking, the first half of this year has 204 00:11:33,900 --> 00:11:35,010 Speaker 1: been OK. 205 00:11:35,289 --> 00:11:37,979 Speaker 1: Um, on the trade side, there's this whole story that 206 00:11:37,979 --> 00:11:40,739 Speaker 1: there's been a lot of, uh, frontloading of trade with 207 00:11:40,739 --> 00:11:43,099 Speaker 1: the US and then in the 4th quarter, we will 208 00:11:43,099 --> 00:11:45,098 Speaker 1: get some really bad data out of Asia because exports 209 00:11:45,099 --> 00:11:47,380 Speaker 1: will more or less, you know, decline sharply because of 210 00:11:47,380 --> 00:11:50,179 Speaker 1: the front loading. Uh, what is your sense of this 211 00:11:50,179 --> 00:11:53,580 Speaker 2: issue? Well, there are signs of slowing down already, right? 212 00:11:53,820 --> 00:11:58,580 Speaker 2: So that's expected. I think front loading uh was certainly 213 00:11:58,580 --> 00:12:01,979 Speaker 2: part of the story. So we do see a slower 214 00:12:01,979 --> 00:12:03,460 Speaker 2: momentum going forward. 215 00:12:03,869 --> 00:12:07,710 Speaker 2: Uh, but I, I think even there, 111 has to 216 00:12:07,710 --> 00:12:11,609 Speaker 2: think empirically what's happening at the moment. So what I 217 00:12:11,609 --> 00:12:16,270 Speaker 2: think understand some emerging, uh, evidence shows that there's quite 218 00:12:16,270 --> 00:12:18,949 Speaker 2: a bit of burden sharing going on, you know, exporters 219 00:12:18,950 --> 00:12:23,349 Speaker 2: are taking a hit, and they are reducing their margins. But, uh, 220 00:12:23,390 --> 00:12:25,710 Speaker 2: you know, some of the big retailers in the US 221 00:12:25,710 --> 00:12:29,950 Speaker 2: also are reducing, uh, their margins and consumers in the 222 00:12:29,950 --> 00:12:31,039 Speaker 2: US are taking 223 00:12:31,330 --> 00:12:33,280 Speaker 2: A little bit of a hit, but not too much. 224 00:12:33,570 --> 00:12:37,809 Speaker 2: So going forward, whether this picture will, will, uh, um, 225 00:12:37,940 --> 00:12:39,849 Speaker 2: continue to be the case, I think there are worries 226 00:12:39,849 --> 00:12:42,799 Speaker 2: that maybe, you know, the retailers have reached the end 227 00:12:42,799 --> 00:12:48,840 Speaker 2: of the ability to absorb some of this uh rising cost. Um, 228 00:12:49,049 --> 00:12:52,329 Speaker 2: but remember, the US is a very large economy and 229 00:12:52,330 --> 00:12:56,539 Speaker 2: the imports are only a small part of the GDP. Uh, 230 00:12:56,609 --> 00:13:00,319 Speaker 2: so I think a tariff alone would not necessarily derail. 231 00:13:00,799 --> 00:13:04,880 Speaker 2: Uh, the US economy itself, I think, uh, uh, the 232 00:13:04,880 --> 00:13:09,119 Speaker 2: US economy may be slowing down, but the policymakers, uh, 233 00:13:09,239 --> 00:13:12,820 Speaker 2: you know, the Fed is very skilled, uh, central, central bank. 234 00:13:13,200 --> 00:13:16,460 Speaker 2: So hopefully, they will steer the economy and broadly speaking, 235 00:13:16,679 --> 00:13:18,400 Speaker 2: that's very important for the global 236 00:13:18,400 --> 00:13:18,890 Speaker 2: economy. 237 00:13:19,030 --> 00:13:19,439 Speaker 1: Absolutely. 238 00:13:19,760 --> 00:13:22,840 Speaker 1: So, the way I think about the US is that 239 00:13:22,840 --> 00:13:27,270 Speaker 1: while tariff related issues are a concern, they are a concern, 240 00:13:27,440 --> 00:13:30,549 Speaker 1: immigration related issues could also lead to some inflation problems, 241 00:13:30,679 --> 00:13:31,349 Speaker 1: some of the 242 00:13:31,669 --> 00:13:35,108 Speaker 1: Uh, other things that the authorities are doing, including their 243 00:13:35,109 --> 00:13:39,780 Speaker 1: fiscal policy, they will contribute a multitude of sources of concern, 244 00:13:39,869 --> 00:13:42,150 Speaker 1: not just the tariff issue alone. But coming back to 245 00:13:42,150 --> 00:13:44,630 Speaker 1: the burden sharing, I'm really fascinated by this. So let 246 00:13:44,630 --> 00:13:46,580 Speaker 1: me paraphrase what you just said. So there are three 247 00:13:46,580 --> 00:13:49,739 Speaker 1: layers of burden sharing. I, as an exporter, might take 248 00:13:49,739 --> 00:13:52,750 Speaker 1: some margin compression. You as an importer might take some 249 00:13:52,750 --> 00:13:55,109 Speaker 1: hit on your balance sheet, and then the remainder goes 250 00:13:55,109 --> 00:13:55,709 Speaker 1: to the 251 00:13:56,039 --> 00:14:01,599 Speaker 1: Uh, pockets of the American consumer. Looking at import data, 252 00:14:01,719 --> 00:14:03,400 Speaker 1: price data out of the US, and there's quite a 253 00:14:03,400 --> 00:14:06,400 Speaker 1: bit of, uh, data product wise, countrywise, we can see 254 00:14:06,400 --> 00:14:10,640 Speaker 1: that evidence of all three are already there. Uh, Walmarts 255 00:14:10,640 --> 00:14:12,599 Speaker 1: of the world have given warnings about their balance sheet 256 00:14:12,599 --> 00:14:14,280 Speaker 1: getting hit by the thing, but at the same time, 257 00:14:14,320 --> 00:14:16,200 Speaker 1: we're seeing import price of a lot of these things 258 00:14:16,200 --> 00:14:18,479 Speaker 1: that are tariff hit are going up. Um. 259 00:14:19,229 --> 00:14:22,530 Speaker 1: Did you see this coming when the tariffs were announced 260 00:14:22,530 --> 00:14:23,960 Speaker 1: or this has been a bit of a surprise for you, 261 00:14:23,969 --> 00:14:26,919 Speaker 1: this three-pronged burden sharing, or you would have thought that 262 00:14:27,450 --> 00:14:30,090 Speaker 1: American demand is fairly inelastic and prices will just go 263 00:14:30,090 --> 00:14:30,770 Speaker 1: to the US 264 00:14:30,770 --> 00:14:31,400 Speaker 1: consumers? 265 00:14:31,650 --> 00:14:34,169 Speaker 2: Well, I mean, there were some studies, there were some 266 00:14:34,169 --> 00:14:37,690 Speaker 2: studies showing the last round of trade tensions between the 267 00:14:37,690 --> 00:14:40,679 Speaker 2: US and China, so that seemed to be the case. Uh, 268 00:14:40,770 --> 00:14:42,969 Speaker 2: but this round, I, I think there is, you know, 269 00:14:43,130 --> 00:14:47,770 Speaker 2: some interesting developments, um, but in theory, actually, as I mentioned, 270 00:14:47,844 --> 00:14:51,955 Speaker 2: I mentioned earlier, the impact on the imposing country is 271 00:14:51,955 --> 00:14:55,835 Speaker 2: not that obvious. One channel is given the dominance of 272 00:14:55,835 --> 00:15:00,275 Speaker 2: the US market. They could sometimes even manage to extract 273 00:15:00,275 --> 00:15:02,875 Speaker 2: some terms of trade gains out of this, in the 274 00:15:02,875 --> 00:15:06,034 Speaker 2: sense that actually one signs that we have seen some 275 00:15:06,034 --> 00:15:08,315 Speaker 2: producer prices declining in the region. 276 00:15:08,669 --> 00:15:12,559 Speaker 2: Uh, so I'm just wondering whether, whether, you know, it's 277 00:15:12,559 --> 00:15:15,630 Speaker 2: one sign that, uh, even, uh, uh, you know, some 278 00:15:15,630 --> 00:15:19,270 Speaker 2: of the prices actually have been declining, uh, in the in, 279 00:15:19,349 --> 00:15:21,869 Speaker 2: in this region in order to maintain some of the 280 00:15:21,869 --> 00:15:24,219 Speaker 2: uh export competitiveness. 281 00:15:24,669 --> 00:15:28,299 Speaker 1: What does street theory say about retaliation? If I impose 282 00:15:28,299 --> 00:15:30,669 Speaker 1: tariff on you, should you impose tariff on me? 283 00:15:31,380 --> 00:15:34,770 Speaker 2: Well, from a welfare point of view, probably know, I 284 00:15:34,770 --> 00:15:37,520 Speaker 2: think what we have been worried is that there are, 285 00:15:37,609 --> 00:15:40,039 Speaker 2: if there are rounds of retaliation. 286 00:15:40,609 --> 00:15:44,820 Speaker 2: Uh, that could lead to really a very bad outcome 287 00:15:44,820 --> 00:15:48,010 Speaker 2: for the global economy. I think that was, uh, you know, 288 00:15:48,130 --> 00:15:52,760 Speaker 2: the lessons from the 1930s, as you would, would remember 289 00:15:53,289 --> 00:15:57,520 Speaker 2: from books, not from your own experience, right? So that was, uh, 290 00:15:57,530 --> 00:16:00,250 Speaker 2: that was the bad outcome we were, uh, you know, 291 00:16:00,369 --> 00:16:04,559 Speaker 2: economists tend tended to to fear. This round, I think, uh, 292 00:16:04,570 --> 00:16:07,849 Speaker 2: the big countries, certainly, I think China, US has, they 293 00:16:07,849 --> 00:16:08,809 Speaker 2: have been managing. 294 00:16:09,135 --> 00:16:13,244 Speaker 2: This round, this round of tensions quite skillfully, I would say, 295 00:16:13,455 --> 00:16:16,575 Speaker 2: you know, the, um, uh, the, you know, of course, 296 00:16:16,695 --> 00:16:21,174 Speaker 2: China is facing very large uh tariff increases, uh, but 297 00:16:21,174 --> 00:16:24,135 Speaker 2: they have been negotiating. I think the, the, there have 298 00:16:24,135 --> 00:16:28,534 Speaker 2: been several extensions of, of the, of the pause, uh, 299 00:16:28,614 --> 00:16:31,655 Speaker 2: and I hope the uh longer lasting agreement will be 300 00:16:31,655 --> 00:16:36,215 Speaker 2: reached that would not lead to further escalation of tensions. 301 00:16:36,294 --> 00:16:37,255 Speaker 2: I think that's something. 302 00:16:37,679 --> 00:16:40,960 Speaker 2: Uh, I think the major risk we see in the 303 00:16:40,960 --> 00:16:45,760 Speaker 2: outlook in this region is still uh escalation uh of 304 00:16:45,760 --> 00:16:48,849 Speaker 2: the tensions that cannot be ruled out as we, we 305 00:16:48,849 --> 00:16:53,400 Speaker 2: were recently made aware because that's right, in terms of 306 00:16:53,400 --> 00:16:57,080 Speaker 2: uh uh pharmaceuticals. So that has been a risk we 307 00:16:57,080 --> 00:17:00,559 Speaker 2: have been flagging uh on semiconductors as well. I mean, 308 00:17:00,640 --> 00:17:03,950 Speaker 2: that would be even, even worse, right, because this region 309 00:17:03,950 --> 00:17:05,670 Speaker 2: is really reliant on 310 00:17:06,130 --> 00:17:09,859 Speaker 2: Uh, semiconductors. So those risks cannot be really ruled out. 311 00:17:10,189 --> 00:17:13,709 Speaker 1: Don, earlier when you were talking about company-specific strategy to 312 00:17:13,709 --> 00:17:16,829 Speaker 1: deal with the uncertainty around trade war, you said that, 313 00:17:16,839 --> 00:17:18,790 Speaker 1: you know, you should set up supply chains, you should 314 00:17:18,790 --> 00:17:22,589 Speaker 1: make your production processes more resilient. Aren't these things costly 315 00:17:22,589 --> 00:17:26,660 Speaker 1: and would that not lead to lower margins or higher inflation? 316 00:17:27,109 --> 00:17:30,670 Speaker 2: Well, when make investment decisions, you always have to be 317 00:17:30,670 --> 00:17:31,540 Speaker 2: forward looking. 318 00:17:31,800 --> 00:17:35,010 Speaker 2: I think you have to prepare for 5 years, 10 319 00:17:35,010 --> 00:17:39,609 Speaker 2: years down the road, and for a more fragmented world. 320 00:17:40,099 --> 00:17:43,930 Speaker 2: And uh these are not easy decisions to make, certainly, 321 00:17:44,060 --> 00:17:47,819 Speaker 2: but you have, you know, businesses thrive if they have 322 00:17:47,819 --> 00:17:48,719 Speaker 2: a forward looking 323 00:17:48,719 --> 00:17:49,209 Speaker 2: view. 324 00:17:49,540 --> 00:17:53,819 Speaker 1: But a fragmented world is less profitable and or more inflationary. 325 00:17:55,310 --> 00:17:58,270 Speaker 2: I think that's the worry. I think a frag fragmented 326 00:17:58,270 --> 00:18:01,430 Speaker 2: the world will would probably lead to less efficiency, as 327 00:18:01,430 --> 00:18:04,390 Speaker 2: we know, in the, in the, in the ideal world, 328 00:18:04,670 --> 00:18:07,829 Speaker 2: maybe I think the height of the global globalization actually 329 00:18:07,829 --> 00:18:08,389 Speaker 2: show that. 330 00:18:08,790 --> 00:18:10,829 Speaker 2: You know, in the, uh, you know, when we scale up, 331 00:18:11,030 --> 00:18:15,300 Speaker 2: when we use the global markets as our uh home base, 332 00:18:15,550 --> 00:18:18,420 Speaker 2: I think that's, that, of course, is the most efficient 333 00:18:18,420 --> 00:18:21,829 Speaker 2: outcome in terms of cost. But of course, the downside 334 00:18:21,829 --> 00:18:25,948 Speaker 2: is that there could be some uh uh fragility in 335 00:18:25,949 --> 00:18:28,510 Speaker 2: that network in the sense that if we are talking 336 00:18:28,510 --> 00:18:33,310 Speaker 2: about sovereign countries, if there are non-economic factors, uh, came 337 00:18:33,310 --> 00:18:34,629 Speaker 2: into being, 338 00:18:34,959 --> 00:18:39,040 Speaker 2: And uh that might uh disrupt this kind of uh 339 00:18:39,040 --> 00:18:44,199 Speaker 2: production processes and uh that could cause disruptions. So now 340 00:18:44,199 --> 00:18:46,159 Speaker 2: I think the thinking is that how to build some 341 00:18:46,160 --> 00:18:51,510 Speaker 2: resilience while staying uh while still maintaining uh efficiency. 342 00:18:51,979 --> 00:18:53,880 Speaker 2: Uh, that may, you know, the world may not be 343 00:18:53,880 --> 00:18:57,550 Speaker 2: one single market anymore, uh, but, uh, uh, but I 344 00:18:57,550 --> 00:18:59,650 Speaker 2: think these are some of the considerations. 345 00:19:00,140 --> 00:19:02,739 Speaker 1: Sitting here in Singapore, running the AMRO office, do you 346 00:19:02,739 --> 00:19:04,619 Speaker 1: take a view on global growth or are you just 347 00:19:04,619 --> 00:19:06,939 Speaker 1: focusing on Asian growth when you make your forecast? 348 00:19:07,800 --> 00:19:11,989 Speaker 2: Uh, we don't, uh, do a separate forecast of, of 349 00:19:11,989 --> 00:19:17,869 Speaker 2: the global economy. We primarily rely on the global institutions, uh, 350 00:19:17,880 --> 00:19:20,609 Speaker 2: and for them to, uh, to have a view on 351 00:19:20,609 --> 00:19:24,359 Speaker 2: the major economies, uh, but we take those as given 352 00:19:24,359 --> 00:19:28,489 Speaker 2: as uh our assumptions when we do our own forecast. 353 00:19:28,910 --> 00:19:33,319 Speaker 1: And in terms of ASEAN + 3 economies forecast for 2026, 354 00:19:33,400 --> 00:19:35,550 Speaker 1: I think 25 is over, so we leave 25 behind. 355 00:19:35,680 --> 00:19:38,280 Speaker 1: It's been slightly better than expected and that's all understood. 356 00:19:38,479 --> 00:19:41,839 Speaker 1: For 2026, what's your growth forecasts overall theme? 357 00:19:42,079 --> 00:19:47,010 Speaker 2: Uh, we are launching an update to the ASEAN 3 358 00:19:47,010 --> 00:19:51,708 Speaker 2: economic outlook on October 9th. Uh, so stay tuned. 359 00:19:52,439 --> 00:19:55,479 Speaker 1: Very good. But generally speaking, the point that we made 360 00:19:55,479 --> 00:19:58,719 Speaker 1: earlier that there is a slowdown in likely slowdown in 361 00:19:58,719 --> 00:20:02,040 Speaker 1: trade momentum having put the front loading behind us. Is 362 00:20:02,040 --> 00:20:05,359 Speaker 1: that an issue that you will build into your forecast 363 00:20:05,359 --> 00:20:06,119 Speaker 1: for 2026 364 00:20:06,119 --> 00:20:10,290 Speaker 2: as well? Absolutely, absolutely. I think that's an important consideration. 365 00:20:10,959 --> 00:20:11,879 Speaker 2: Um, yeah. 366 00:20:13,739 --> 00:20:17,300 Speaker 1: ASEAN + 3 countries are by and large a price 367 00:20:17,300 --> 00:20:19,649 Speaker 1: taker as far as energy is concerned, as far as 368 00:20:19,650 --> 00:20:22,349 Speaker 1: commodities are concerned. OK, you know, Indonesia and Malaysia are exporters, 369 00:20:22,449 --> 00:20:25,130 Speaker 1: but net base the region is very much beholden to 370 00:20:25,130 --> 00:20:27,968 Speaker 1: oil and gas and coal prices and so on. Is 371 00:20:27,969 --> 00:20:30,359 Speaker 1: that something that we need to worry about going forward? 372 00:20:30,530 --> 00:20:34,010 Speaker 1: In the past, commodity forecasts were pretty important, but it 373 00:20:34,010 --> 00:20:37,489 Speaker 1: seems like we don't worry about that these days, despite 374 00:20:37,489 --> 00:20:39,349 Speaker 1: all these, you know, Middle East tensions and 375 00:20:39,660 --> 00:20:42,379 Speaker 1: Ukraine Russia issues that commodity prices are fairly stable. So 376 00:20:42,380 --> 00:20:44,459 Speaker 1: I just wanted to ask you, by the by, looking 377 00:20:44,459 --> 00:20:48,139 Speaker 1: at 26 on various risks to the outlook, do you 378 00:20:48,140 --> 00:20:49,379 Speaker 1: think of commodity as one of those 379 00:20:49,380 --> 00:20:50,170 Speaker 1: risks? 380 00:20:50,180 --> 00:20:54,530 Speaker 2: Yes, we list that as the third important risk in our, 381 00:20:54,780 --> 00:20:59,909 Speaker 2: in our sort of risk scenarios. I think the first one. 382 00:21:00,584 --> 00:21:05,905 Speaker 2: escalation of trade tensions. Second one is more volatile global 383 00:21:05,905 --> 00:21:10,823 Speaker 2: financial conditions. And the third one is a potential, potential 384 00:21:10,824 --> 00:21:14,145 Speaker 2: shoot up of the energy prices. Some of the economies 385 00:21:14,145 --> 00:21:18,385 Speaker 2: are quite quite dependent as you are very aware, in this, 386 00:21:18,464 --> 00:21:21,704 Speaker 2: in this region are quite dependent. I'm not an expert 387 00:21:21,704 --> 00:21:26,464 Speaker 2: on the commodity prices, so I don't do any independent forecast. 388 00:21:27,010 --> 00:21:29,609 Speaker 2: Uh, but as you mentioned that energy prices have not 389 00:21:29,609 --> 00:21:33,489 Speaker 2: been volatile as feared, but you cannot still rule out, 390 00:21:33,650 --> 00:21:36,280 Speaker 2: you know, some of the geopolitical tensions are still there. 391 00:21:36,530 --> 00:21:40,609 Speaker 2: The outcomes are quite, uh, quite uncertain. So what's going 392 00:21:40,609 --> 00:21:43,050 Speaker 2: to happen, we, we cannot, uh, you know, I think 393 00:21:43,050 --> 00:21:45,728 Speaker 2: our advice to the policymakers is that this is something 394 00:21:45,729 --> 00:21:46,729 Speaker 2: this still needs to be. 395 00:21:47,219 --> 00:21:50,260 Speaker 2: Uh, prepared. That's why, you know, the policymakers have been 396 00:21:50,260 --> 00:21:53,619 Speaker 2: quite cautious when they sort of, uh, you know, half 397 00:21:53,619 --> 00:21:57,930 Speaker 2: of the central banks have lowered their rates since, uh, 398 00:21:58,180 --> 00:22:01,859 Speaker 2: early April, uh, to support the economies, but they have 399 00:22:01,859 --> 00:22:05,579 Speaker 2: been doing this rather cautiously, uh, and they want to 400 00:22:05,579 --> 00:22:10,060 Speaker 2: preserve public space precisely because of these, uh, these shocks 401 00:22:10,060 --> 00:22:12,939 Speaker 2: could be, could be still hitting them. OK, 402 00:22:13,140 --> 00:22:15,819 Speaker 1: perfect segue, because that was exactly the question that I 403 00:22:15,819 --> 00:22:16,619 Speaker 1: was going to lead into. 404 00:22:17,000 --> 00:22:18,849 Speaker 1: Let's talk about policy space in the region, but let's 405 00:22:18,849 --> 00:22:22,319 Speaker 1: start with fiscal policy. We'll go to monetary momentarily. With 406 00:22:22,319 --> 00:22:26,959 Speaker 1: the sort of backdrop that we have around uncertainty, uh, and, 407 00:22:27,000 --> 00:22:31,599 Speaker 1: and fragmentation, is there a clear cut fiscal policy recommendation? 408 00:22:32,569 --> 00:22:36,079 Speaker 2: So fiscal space in the region, I think is moderate in, 409 00:22:36,109 --> 00:22:39,099 Speaker 2: in the broadly speaking, I think there's moderate amount of 410 00:22:39,099 --> 00:22:43,520 Speaker 2: fiscal space. In certain economies is larger than others, some, 411 00:22:43,619 --> 00:22:47,420 Speaker 2: some of the countries. Uh, but Asia, I think economies, 412 00:22:47,670 --> 00:22:53,390 Speaker 2: Asian economies are broadly fiscally quite conservative, most of them. Uh, so, uh, I, 413 00:22:53,500 --> 00:22:56,599 Speaker 2: I think there is still some space to be used. Uh, 414 00:22:56,739 --> 00:22:59,929 Speaker 2: I think fiscal policy is less limbo than monetary policy. 415 00:23:00,329 --> 00:23:03,169 Speaker 2: Uh, so from a cyclical point of view, you have 416 00:23:03,170 --> 00:23:07,280 Speaker 2: to think what is the most efficient, uh, way of doing, uh, 417 00:23:07,290 --> 00:23:13,520 Speaker 2: countercyclical fiscal policy. Um, our recommendation is that for some, uh, 418 00:23:13,530 --> 00:23:20,010 Speaker 2: targeted support that, that can be, that can be quite effective, uh, uh, but, uh, 419 00:23:20,030 --> 00:23:23,089 Speaker 2: more broadly speaking, I think countries have quite, you know, 420 00:23:23,170 --> 00:23:25,300 Speaker 2: our advice is for them to be cautious. 421 00:23:26,170 --> 00:23:29,739 Speaker 1: Um, in the US, uh, especially in the agriculture sector, uh, 422 00:23:29,819 --> 00:23:32,660 Speaker 1: I'm reading stories that because China as part of his 423 00:23:32,660 --> 00:23:35,669 Speaker 1: retaliation is not buying soybean from the US, US soybean 424 00:23:35,670 --> 00:23:37,699 Speaker 1: farmers are under stress and the Trump administration is saying 425 00:23:37,699 --> 00:23:38,979 Speaker 1: they'll take some of the tariff revenue. 426 00:23:39,760 --> 00:23:42,400 Speaker 1: Assuming it's fungible, uh, and, and put it as a 427 00:23:42,400 --> 00:23:44,760 Speaker 1: subsidy for the agriculture sector. I believe they did the 428 00:23:44,760 --> 00:23:48,680 Speaker 1: similar thing in the Trump 1.0 as well. Is that 429 00:23:48,680 --> 00:23:51,060 Speaker 1: best practice? Would you recommend things like that, which should 430 00:23:51,060 --> 00:23:54,280 Speaker 1: reverse the story to Asia that exporters under stress, should 431 00:23:54,280 --> 00:23:55,579 Speaker 1: the governments give them subsidy? 432 00:23:56,550 --> 00:23:59,390 Speaker 2: Well, uh, you know, I think the first consideration is 433 00:23:59,390 --> 00:24:01,790 Speaker 2: that you don't want to create the distortions for the 434 00:24:01,790 --> 00:24:06,750 Speaker 2: longer term, right? Some of these targeted support can be useful. 435 00:24:06,790 --> 00:24:10,109 Speaker 2: I think the COVID period was a good example because 436 00:24:10,109 --> 00:24:13,310 Speaker 2: that was such a big shock. So fiscal policy played 437 00:24:13,310 --> 00:24:17,468 Speaker 2: a very important role of supporting households to smooth over 438 00:24:17,469 --> 00:24:18,670 Speaker 2: the period, uh. 439 00:24:18,790 --> 00:24:22,510 Speaker 2: And, uh, you know, macroeconomic policy really has the important 440 00:24:22,510 --> 00:24:27,349 Speaker 2: role of coordinating, coordinating expectations because when, when the economies 441 00:24:27,349 --> 00:24:30,750 Speaker 2: are hit by a very large shock, people became very cautious. 442 00:24:30,910 --> 00:24:33,939 Speaker 2: So at this time, you want to, uh, you know, uh, 443 00:24:33,949 --> 00:24:37,188 Speaker 2: provide a bit support to coordinate actions, so people, so 444 00:24:37,189 --> 00:24:40,949 Speaker 2: the economy does not really go into a bad equi equilibrium. 445 00:24:41,329 --> 00:24:44,969 Speaker 2: So that's really the, the role of uh macroeconomic stabilization. 446 00:24:45,010 --> 00:24:48,680 Speaker 2: You want to create some of this uh coordination mechanism. 447 00:24:49,209 --> 00:24:52,660 Speaker 2: Uh, fiscal policy, I think played a very important role. 448 00:24:52,689 --> 00:24:56,530 Speaker 2: Some of this household directed support, uh, that I think 449 00:24:56,530 --> 00:25:00,050 Speaker 2: cushioned a lot of the economies. Uh, but you don't 450 00:25:00,050 --> 00:25:05,369 Speaker 2: want to create, you know, subsidies that leads to distortions 451 00:25:05,369 --> 00:25:12,188 Speaker 2: that would permanently distort decisions by firms, which sectors to invest. Uh, I, 452 00:25:12,290 --> 00:25:14,969 Speaker 2: I think that's, you know, usually quite risky. 453 00:25:15,800 --> 00:25:17,919 Speaker 1: Let's um come to the monetary policy side. So as 454 00:25:17,920 --> 00:25:21,198 Speaker 1: you pointed out, several central banks in the region have 455 00:25:21,199 --> 00:25:24,760 Speaker 1: cut interest rates. Inflation doesn't seem to be a concern 456 00:25:24,760 --> 00:25:27,910 Speaker 1: right now whether it is commodity or non-commodity related inflation. 457 00:25:28,219 --> 00:25:30,879 Speaker 1: Is there more room to accommodate the monetary policy in 458 00:25:30,880 --> 00:25:31,239 Speaker 1: the region? 459 00:25:31,359 --> 00:25:31,599 Speaker 2: Again, 460 00:25:31,760 --> 00:25:34,500 Speaker 2: I think there is a moderate amount of room, uh, 461 00:25:34,800 --> 00:25:39,469 Speaker 2: you know, uh, in this region, as you know well, uh, 462 00:25:39,569 --> 00:25:41,310 Speaker 2: central banks have to consider. 463 00:25:41,670 --> 00:25:47,129 Speaker 2: Um, various things. Many, many central banks are already inflation targeted. 464 00:25:47,369 --> 00:25:50,810 Speaker 2: So of course, they, uh, they look at their domestic prices, 465 00:25:50,859 --> 00:25:56,310 Speaker 2: but those domestic prices can be influenced by, by global factors. Um, 466 00:25:56,619 --> 00:26:02,129 Speaker 2: another consideration is global financial conditions. Uh, there's traditionally quite 467 00:26:02,130 --> 00:26:08,000 Speaker 2: a strong uh influence from global financial conditions, particularly, uh. 468 00:26:08,400 --> 00:26:13,400 Speaker 2: By US monetary policy cycles. When the Fed, uh, tightened 469 00:26:13,400 --> 00:26:18,550 Speaker 2: its policy stance, dollar tended to be strong, tend to 470 00:26:19,439 --> 00:26:24,560 Speaker 2: appreciate that usually um tighten financial conditions. And in that 471 00:26:24,560 --> 00:26:27,879 Speaker 2: sort of condition, it's harder for the central banks to loosen. 472 00:26:28,410 --> 00:26:32,510 Speaker 2: To work against that sort of tightening, uh, and because they, 473 00:26:32,609 --> 00:26:37,069 Speaker 2: they have to think what the impact on the exchange rate. They, 474 00:26:37,229 --> 00:26:41,379 Speaker 2: they sometimes worry about too much volatility on the downside 475 00:26:41,380 --> 00:26:42,510 Speaker 2: for the exchange rate. 476 00:26:42,969 --> 00:26:46,979 Speaker 2: And this time around, what's interesting, as you know well, 477 00:26:47,150 --> 00:26:52,629 Speaker 2: is that the dollar um had uh has depreciated, uh 478 00:26:52,630 --> 00:26:55,000 Speaker 2: since the early of the year. And to some extent 479 00:26:55,000 --> 00:26:59,579 Speaker 2: that has provided some space for the central banks to 480 00:26:59,579 --> 00:27:03,300 Speaker 2: uh loosen their monetary policy stance. 481 00:27:03,920 --> 00:27:07,520 Speaker 1: No, you talked about the risk from the downside to 482 00:27:07,520 --> 00:27:11,479 Speaker 1: exchange rates if countries cut rates too much or prematurely, 483 00:27:11,560 --> 00:27:12,909 Speaker 1: the currency get under pressure. 484 00:27:13,650 --> 00:27:15,959 Speaker 1: Let me ask you about the other end of the risk. 485 00:27:16,209 --> 00:27:20,050 Speaker 1: If currencies do appreciate substantially in the region, what are 486 00:27:20,050 --> 00:27:21,170 Speaker 1: the risks around that? 487 00:27:22,069 --> 00:27:26,829 Speaker 2: Appreciation. Traditionally, it's more about, um, you know, if it 488 00:27:26,829 --> 00:27:29,750 Speaker 2: leads to real appreciation of the exchange rate, that could 489 00:27:29,750 --> 00:27:34,510 Speaker 2: have some competitiveness, uh pressures. But on the financial side, 490 00:27:34,560 --> 00:27:38,459 Speaker 2: I think it depends on the balance sheet structure. Uh, 491 00:27:38,589 --> 00:27:42,270 Speaker 2: and if you have a short position, particularly, you know, 492 00:27:42,349 --> 00:27:44,790 Speaker 2: a lot of the banks use dollars, a major funding 493 00:27:44,790 --> 00:27:45,780 Speaker 2: currency in the region. 494 00:27:46,239 --> 00:27:49,459 Speaker 2: Uh, then, uh, uh, you know, uh, that could be 495 00:27:49,459 --> 00:27:51,060 Speaker 2: a problem, and, right, 496 00:27:51,260 --> 00:27:53,020 Speaker 1: um, I want to talk about financial security building in 497 00:27:53,020 --> 00:27:54,219 Speaker 1: a second, but I just want to stay with that 498 00:27:54,219 --> 00:27:56,900 Speaker 1: argument for a moment. If I'm facing a terms of 499 00:27:56,900 --> 00:27:59,979 Speaker 1: trade shock because of tariff, plus I'm seeing my exchange appreciate, 500 00:28:00,660 --> 00:28:02,889 Speaker 1: it's a double whammy. It could be, yes. 501 00:28:03,400 --> 00:28:06,250 Speaker 1: Uh, and I think that's what's, uh, I think vexing, uh, 502 00:28:06,319 --> 00:28:09,958 Speaker 1: many regional policymakers because in Trump 1.0, when we saw 503 00:28:09,959 --> 00:28:14,119 Speaker 1: the tariffs, it had the opposite impact, dollar appreciated, and 504 00:28:14,119 --> 00:28:16,920 Speaker 1: in response to tariffs, countries saw their exchanges weaken. 505 00:28:17,329 --> 00:28:21,180 Speaker 1: This time it's going the opposite direction, which may get 506 00:28:21,180 --> 00:28:23,669 Speaker 1: them out of trouble as far as the US Treasury 507 00:28:23,670 --> 00:28:26,939 Speaker 1: is concerned, you know, allegations of currency manipulation, all that stuff, 508 00:28:27,150 --> 00:28:29,390 Speaker 1: but as far as the exporters are concerned, really is 509 00:28:29,390 --> 00:28:30,109 Speaker 1: a two-pronged 510 00:28:30,109 --> 00:28:30,579 Speaker 1: challenge. 511 00:28:30,910 --> 00:28:33,989 Speaker 2: The, but the exchange rates have uh largely sort of the, 512 00:28:34,030 --> 00:28:35,989 Speaker 2: as you mentioned, there is some appreciation. 513 00:28:36,300 --> 00:28:39,430 Speaker 2: But it's not a very strong one, right, moderately. So 514 00:28:39,430 --> 00:28:42,209 Speaker 2: I think this is a reasonably comfortable situation. 515 00:28:42,430 --> 00:28:45,310 Speaker 1: Good, good. All right, financial stability, as I said at 516 00:28:45,310 --> 00:28:48,010 Speaker 1: the introduction of this podcast, that's how you, I remember 517 00:28:48,010 --> 00:28:51,630 Speaker 1: Yong as a financial sector expert going back years. What's 518 00:28:51,630 --> 00:28:53,939 Speaker 1: your sense of financial stability in the region? 519 00:28:54,469 --> 00:28:59,229 Speaker 2: As I mentioned, the traditionally, uh, global financial conditions uh 520 00:28:59,229 --> 00:29:00,430 Speaker 2: influenced this region. 521 00:29:00,829 --> 00:29:04,719 Speaker 2: Uh, a lot. So, policymakers tend to look at the 522 00:29:04,719 --> 00:29:09,869 Speaker 2: global financial conditions a lot. I think domestically, this round, uh, 523 00:29:09,880 --> 00:29:15,390 Speaker 2: when the tariff shock came up, of course, markets reacted, um, 524 00:29:15,890 --> 00:29:19,670 Speaker 2: Uh, but since then, I think, you know, most financial 525 00:29:19,670 --> 00:29:24,060 Speaker 2: markets have been quite, uh, quite resilient, quite stable, and, uh, 526 00:29:24,069 --> 00:29:27,579 Speaker 2: you know, in terms of equities, uh, the plus 3 527 00:29:27,579 --> 00:29:30,670 Speaker 2: economies have been doing somewhat better. I, I, you know, 528 00:29:30,750 --> 00:29:34,310 Speaker 2: than the ASEAN uh markets. I, I think that's uh 529 00:29:34,310 --> 00:29:35,869 Speaker 2: very much tech related. 530 00:29:36,339 --> 00:29:41,400 Speaker 2: Um, and, uh, uh, on the bond market side, I 531 00:29:41,400 --> 00:29:46,550 Speaker 2: think the yield curves have typically, uh, declined. So it has, uh, uh, 532 00:29:46,560 --> 00:29:50,869 Speaker 2: bond markets have been doing pretty well, quite stable. Uh, 533 00:29:51,050 --> 00:29:53,479 Speaker 2: but in terms of banking sector, I think we see 534 00:29:53,479 --> 00:29:57,189 Speaker 2: a lot of resilience, uh, in the banks in, in 535 00:29:57,189 --> 00:30:00,640 Speaker 2: as plus 3 economies. Uh, so that, this is very 536 00:30:00,640 --> 00:30:01,599 Speaker 2: different from 537 00:30:02,020 --> 00:30:05,369 Speaker 2: Uh, as you remember, when we worked together in those years, 538 00:30:05,619 --> 00:30:08,380 Speaker 2: there was, uh, in the early 2000s coming out of 539 00:30:08,380 --> 00:30:11,900 Speaker 2: the Asian financial crisis, there was more, those days were, 540 00:30:12,099 --> 00:30:14,180 Speaker 2: there were more worries on the banking system. I think 541 00:30:14,180 --> 00:30:16,969 Speaker 2: these days, the banks really have been strengthened. 542 00:30:17,189 --> 00:30:19,579 Speaker 1: Absolutely. So I think the, one of the legacies of 543 00:30:19,579 --> 00:30:23,900 Speaker 1: the 97 financial crisis, 9798 crisis was the improvement in 544 00:30:23,900 --> 00:30:27,979 Speaker 1: bank uh balance sheets, uh, supervision, transparency of reporting, and 545 00:30:27,979 --> 00:30:29,430 Speaker 1: I think that's a good legacy to have had. 546 00:30:30,060 --> 00:30:32,900 Speaker 1: We've seen similar things happen in the US after the 547 00:30:32,900 --> 00:30:35,530 Speaker 1: GFC 2008, 2009 led to. 548 00:30:36,239 --> 00:30:40,459 Speaker 1: Uh, all sorts of measures to make US banking system narrower, 549 00:30:40,569 --> 00:30:44,050 Speaker 1: more resilient. But one fear in the US is that 550 00:30:44,050 --> 00:30:45,969 Speaker 1: some of the risks may have jumped from banks to 551 00:30:45,969 --> 00:30:49,170 Speaker 1: non-banks balance sheet. Are there similar concerns in Asia? 552 00:30:50,079 --> 00:30:53,380 Speaker 2: Uh, less than in the US, I think, uh, the 553 00:30:53,380 --> 00:30:58,459 Speaker 2: non-bank financial mediation worries, I think were centered on US 554 00:30:58,459 --> 00:31:02,699 Speaker 2: and uh uh have been centered on US and Europe. Uh, but, 555 00:31:02,739 --> 00:31:06,180 Speaker 2: you know, that's something uh in in Asia, I think 556 00:31:06,180 --> 00:31:11,229 Speaker 2: policymakers have also, uh, uh, taken an interest in the subject, 557 00:31:11,500 --> 00:31:12,180 Speaker 2: but I, I don't. 558 00:31:12,280 --> 00:31:15,689 Speaker 2: I think it has, it has become as prominent as 559 00:31:15,689 --> 00:31:21,739 Speaker 2: in other places, uh, you know, issues with uh private credit, uh, uh, 560 00:31:21,750 --> 00:31:25,380 Speaker 2: you know, it's on the horizon, but it's not as large, uh, 561 00:31:25,390 --> 00:31:27,900 Speaker 2: as in other, in other parts of the world. 562 00:31:28,199 --> 00:31:32,130 Speaker 2: Uh, in the advanced economies, in China, of course, a 563 00:31:32,130 --> 00:31:36,530 Speaker 2: few years back, it's, you know, those non-bank financial mediation 564 00:31:36,530 --> 00:31:40,130 Speaker 2: related to wealth, uh, management products and those issues have, 565 00:31:40,290 --> 00:31:43,239 Speaker 2: I think in a way have been under control. Yes, 566 00:31:43,449 --> 00:31:44,280 Speaker 1: indeed, indeed. 567 00:31:44,579 --> 00:31:48,170 Speaker 1: Um, we saw in 2008, 2009 that a shock that 568 00:31:48,170 --> 00:31:51,170 Speaker 1: was localized in the US very rapidly became a global 569 00:31:51,170 --> 00:31:55,209 Speaker 1: shock from the subprime crisis to hitting the uh spreads 570 00:31:55,209 --> 00:31:56,079 Speaker 1: all over the world. 571 00:31:56,729 --> 00:31:58,810 Speaker 1: Now, one thing that I worry on is that when 572 00:31:58,810 --> 00:32:00,969 Speaker 1: I travel in Asia, whether it's in Singapore or in 573 00:32:00,969 --> 00:32:06,189 Speaker 1: Korea or Japan, high net worth individuals own largely US stocks. Uh, 574 00:32:06,329 --> 00:32:09,209 Speaker 1: sovereign wealth funds on a lot of US treasuries, and 575 00:32:09,209 --> 00:32:12,369 Speaker 1: corporations through trade or through finance have a huge amount 576 00:32:12,369 --> 00:32:17,290 Speaker 1: of US dollar exposure. So in a situation where the 577 00:32:17,290 --> 00:32:20,530 Speaker 1: dollar depreciates and or there is some correction in the 578 00:32:20,530 --> 00:32:25,040 Speaker 1: US market given its lofty evaluations, that interdependence, that risk, 579 00:32:25,209 --> 00:32:26,410 Speaker 1: how big is it for Asia? 580 00:32:27,579 --> 00:32:28,060 Speaker 2: Um 581 00:32:28,750 --> 00:32:31,439 Speaker 2: I don't know exactly how big that is, but it's 582 00:32:31,439 --> 00:32:35,540 Speaker 2: an important uh risk, as I agree with you, it's. 583 00:32:35,969 --> 00:32:40,369 Speaker 2: Uh, but what's interesting is that um the US markets, 584 00:32:40,650 --> 00:32:44,329 Speaker 2: particularly equity has, has been doing really well, right? And 585 00:32:44,329 --> 00:32:47,449 Speaker 2: uh that's a reflection that the equity markets are really 586 00:32:47,449 --> 00:32:50,510 Speaker 2: a global market, uh, you know, it's the, uh, it's 587 00:32:50,510 --> 00:32:54,449 Speaker 2: not the US necessarily, the US firms, it's these firms 588 00:32:54,449 --> 00:32:59,119 Speaker 2: are really global firms, and they have production networks, uh, 589 00:32:59,130 --> 00:33:00,310 Speaker 2: in the, in the 590 00:33:00,359 --> 00:33:03,709 Speaker 2: Uh, in different parts of the world. Uh, so Asian 591 00:33:03,709 --> 00:33:09,839 Speaker 2: investors like exposure to, uh, equity markets in the US, 592 00:33:10,800 --> 00:33:13,939 Speaker 2: but they probably are a little worried about the dollar. 593 00:33:14,229 --> 00:33:18,380 Speaker 2: And the one, you know, research done by the BIS 594 00:33:18,750 --> 00:33:21,069 Speaker 2: uh shows that uh part of the reason for the 595 00:33:21,069 --> 00:33:26,380 Speaker 2: dollar weakness is that global investors, including investors from Asia, 596 00:33:26,390 --> 00:33:28,989 Speaker 2: are hedging their dollar exposure. 597 00:33:29,560 --> 00:33:33,000 Speaker 2: Uh, while they still like the US assets, they are 598 00:33:33,000 --> 00:33:36,189 Speaker 2: probably hedging some of the exposures to the dollar, 599 00:33:36,359 --> 00:33:40,239 Speaker 1: right? So I look at the IAF's monthly portfolio tracker 600 00:33:40,239 --> 00:33:42,560 Speaker 1: database to get a sense of exactly what you're talking about. 601 00:33:42,599 --> 00:33:44,920 Speaker 1: It seems to me that there's certainly been a big 602 00:33:44,920 --> 00:33:48,040 Speaker 1: pickup in fixed income flows to the region and in 603 00:33:48,040 --> 00:33:50,550 Speaker 1: the last few months, equity flows have started to pick up, 604 00:33:50,680 --> 00:33:52,239 Speaker 1: particularly with respect to China. 605 00:33:52,609 --> 00:33:54,959 Speaker 1: So, Don, so far we've generally talked about the region, 606 00:33:55,010 --> 00:33:57,170 Speaker 1: but let's talk about China a little bit, because it's 607 00:33:57,170 --> 00:34:00,010 Speaker 1: such a large economy and its impact on the region 608 00:34:00,010 --> 00:34:02,359 Speaker 1: is substantial. So, um. 609 00:34:03,319 --> 00:34:07,199 Speaker 1: Whether it is the property sector issue or resiliency around 610 00:34:07,199 --> 00:34:10,629 Speaker 1: trade war, or the tech-related developments that we haven't seen 611 00:34:10,629 --> 00:34:12,879 Speaker 1: in China, just give us a sense of your assessment 612 00:34:12,879 --> 00:34:13,989 Speaker 1: of the Chinese economy. 613 00:34:14,639 --> 00:34:17,959 Speaker 2: So the uh the I, I think external side actually 614 00:34:17,959 --> 00:34:21,259 Speaker 2: has been a bright spot for the Chinese economy. Uh, 615 00:34:21,320 --> 00:34:24,439 Speaker 2: the economy in broad terms has been quite steady. 616 00:34:24,750 --> 00:34:30,050 Speaker 2: Uh, but we do see a sort of like a two-speed, uh, economy, 617 00:34:30,070 --> 00:34:32,429 Speaker 2: a little bit of that in the sense that the 618 00:34:32,429 --> 00:34:37,229 Speaker 2: new sectors associate associated with the new technologies, uh, these 619 00:34:37,229 --> 00:34:41,659 Speaker 2: have seen robust, uh, investments and activities have been, uh, 620 00:34:41,669 --> 00:34:43,510 Speaker 2: you know, have been, uh, strong. 621 00:34:43,860 --> 00:34:49,629 Speaker 2: Um, whereas in the legacy, uh, uh, sectors like the property, uh, 622 00:34:49,639 --> 00:34:53,070 Speaker 2: that have taken some time, I think in a way, 623 00:34:53,199 --> 00:34:56,080 Speaker 2: they are still in the process of working out some 624 00:34:56,080 --> 00:34:59,639 Speaker 2: of these, um, uh, legacy issues. 625 00:35:00,010 --> 00:35:03,969 Speaker 2: Uh, as you know, the property sector and the related constructing, 626 00:35:04,209 --> 00:35:08,209 Speaker 2: construction activities were a very important driving force of the 627 00:35:08,209 --> 00:35:13,209 Speaker 2: Chinese economy, uh, since the 2000s. And, uh, and they 628 00:35:13,209 --> 00:35:15,610 Speaker 2: have taken a big shock, big hit. 629 00:35:16,010 --> 00:35:21,158 Speaker 2: Uh, since the pandemic, it's about 2434 years now, I think. 630 00:35:21,449 --> 00:35:23,929 Speaker 2: And uh I, I, I think they're in a way 631 00:35:23,929 --> 00:35:27,638 Speaker 2: still in the process of working that out. And, uh, 632 00:35:27,649 --> 00:35:30,969 Speaker 2: to some extent, I think it's a uh uh loss 633 00:35:30,969 --> 00:35:35,009 Speaker 2: recognition and the allocation process, uh, that has to be completed, 634 00:35:35,129 --> 00:35:36,810 Speaker 2: but there's some, some optimism. 635 00:35:37,340 --> 00:35:40,659 Speaker 2: Uh, that's, uh, you know, we are seeing, uh, the, 636 00:35:40,699 --> 00:35:44,060 Speaker 2: the end of the, uh, uh, uh, beginning of the end, 637 00:35:44,100 --> 00:35:47,299 Speaker 2: at least, the, the, the higher tier cities, first tier, 638 00:35:47,379 --> 00:35:50,739 Speaker 2: second tier, I think these markets have really stabilized and 639 00:35:50,739 --> 00:35:53,459 Speaker 2: lower tier cities. I think it would take a little 640 00:35:53,459 --> 00:35:58,449 Speaker 2: longer for the stock, uh, to the overhang of the stock, uh, 641 00:35:58,459 --> 00:36:01,500 Speaker 2: to be, to be worked out. Um, so I think 642 00:36:01,500 --> 00:36:03,299 Speaker 2: in terms of the financial stability. 643 00:36:04,219 --> 00:36:08,320 Speaker 2: The big banks are in very good, very strong position, right? Uh, 644 00:36:08,399 --> 00:36:13,320 Speaker 2: some of the lower tier, uh, um, uh, smaller banks, 645 00:36:13,600 --> 00:36:15,800 Speaker 2: they could uh they could be, they could have a 646 00:36:15,800 --> 00:36:20,800 Speaker 2: little more exposure to some of these, um, property related 647 00:36:20,800 --> 00:36:26,040 Speaker 2: sectors or local government financing vehicles. Some of these, I think, would, uh, I, 648 00:36:26,129 --> 00:36:28,030 Speaker 2: I think they have been actively. 649 00:36:28,439 --> 00:36:32,229 Speaker 2: Uh, dealing with this, uh, some of the problems, smaller banks, 650 00:36:32,560 --> 00:36:37,729 Speaker 2: and again, we could expect, uh, the, that process to be, 651 00:36:37,879 --> 00:36:41,229 Speaker 2: to be completed in a few, few years' time. So, John, 652 00:36:41,280 --> 00:36:43,279 Speaker 1: the question that I'm about to ask you, I think 653 00:36:43,280 --> 00:36:46,139 Speaker 1: most people will not be able to answer this question authoritatively, 654 00:36:46,159 --> 00:36:48,359 Speaker 1: but you have spent such a long time dealing with 655 00:36:48,360 --> 00:36:51,040 Speaker 1: financial sector issues looking at cross-count evidence. You were the 656 00:36:51,040 --> 00:36:55,089 Speaker 1: right person to answer this question. The property deleveraging cycle 657 00:36:55,090 --> 00:36:55,840 Speaker 1: in Japan. 658 00:36:56,199 --> 00:36:59,360 Speaker 1: US, China, are they more or less the same or 659 00:36:59,360 --> 00:37:01,669 Speaker 1: are they built and are they evolving differently? 660 00:37:02,379 --> 00:37:06,149 Speaker 2: I, I think the property sector is really one of 661 00:37:06,149 --> 00:37:09,549 Speaker 2: these interesting sectors that, you know, there are a lot 662 00:37:09,550 --> 00:37:15,149 Speaker 2: of local, local, um, peculiarities, uh, you have to, you 663 00:37:15,149 --> 00:37:18,529 Speaker 2: have to deal with. So I think that's a very 664 00:37:18,530 --> 00:37:21,870 Speaker 2: hard question to answer. There are, you know, I think 665 00:37:21,870 --> 00:37:24,750 Speaker 2: there are commonalities. So broadly speaking, I think one can 666 00:37:24,750 --> 00:37:28,179 Speaker 2: learn these economies can learn from each other in terms 667 00:37:28,179 --> 00:37:29,129 Speaker 2: of uh 668 00:37:29,560 --> 00:37:36,620 Speaker 2: Uh, the macroeconomic impact of property sector. Uh, so that's, um, 669 00:37:36,699 --> 00:37:40,929 Speaker 2: that's one common commonality, I think we can observe, uh, 670 00:37:40,939 --> 00:37:46,609 Speaker 2: property sectors do, uh, have a very important macroeconomic consequences. 671 00:37:46,699 --> 00:37:51,860 Speaker 2: So that's one commonality I would, I would, uh, share. But, uh, uh, again, 672 00:37:51,899 --> 00:37:56,229 Speaker 2: we know that these are very localized markets and specifically, 673 00:37:56,370 --> 00:37:58,340 Speaker 2: what does it take for each market. 674 00:37:58,780 --> 00:38:01,549 Speaker 2: Uh, to recover, I think that's a very, very country 675 00:38:01,550 --> 00:38:05,529 Speaker 2: specific or even, even, uh, municipality specific, 676 00:38:06,219 --> 00:38:08,780 Speaker 1: absolutely. So, one thing I remember because I worked on 677 00:38:08,780 --> 00:38:10,580 Speaker 1: the Japan desk back in the days in the IMF 678 00:38:10,580 --> 00:38:13,989 Speaker 1: that Japanese banks were characterized by cross shareholding. 679 00:38:14,179 --> 00:38:17,040 Speaker 1: And equity of their counterparties, and that got in the 680 00:38:17,040 --> 00:38:20,080 Speaker 1: way of their willingness to restructure. My understanding, and I've 681 00:38:20,080 --> 00:38:23,979 Speaker 1: asked many from your ex MCM department, the IMF, the, 682 00:38:24,040 --> 00:38:26,320 Speaker 1: the same question, the view is that the Chinese banks 683 00:38:26,320 --> 00:38:28,879 Speaker 1: are not subject to that sort of constraints of the 684 00:38:28,879 --> 00:38:31,919 Speaker 1: cross shareholding. But I want to talk about the US 685 00:38:31,919 --> 00:38:35,709 Speaker 1: experience with the property uh sector bust in from 2008 onward. 686 00:38:35,919 --> 00:38:38,679 Speaker 1: We had a decade of deleveraging both by US households 687 00:38:38,679 --> 00:38:40,429 Speaker 1: and corporations after the GFC. 688 00:38:40,840 --> 00:38:43,300 Speaker 1: But during that time, there was a huge positive world 689 00:38:43,300 --> 00:38:45,699 Speaker 1: effect taking place in the US because of QE bond 690 00:38:45,699 --> 00:38:48,979 Speaker 1: prices were rising, corporate debt spreads were narrowing, and of 691 00:38:48,979 --> 00:38:52,459 Speaker 1: course the equity markets went through a massive pickup. Is 692 00:38:52,459 --> 00:38:55,939 Speaker 1: there a lesson from that that you should pursue very aggressive, 693 00:38:55,979 --> 00:38:59,779 Speaker 1: easy monetary policy when you face a big uh shock 694 00:38:59,780 --> 00:39:00,859 Speaker 1: like a housing crisis? 695 00:39:02,040 --> 00:39:05,549 Speaker 2: So the US, I think also, I mean, we, we, we, 696 00:39:05,560 --> 00:39:07,850 Speaker 2: before I answer your question, I think we should note 697 00:39:07,850 --> 00:39:12,799 Speaker 2: that households in China are not nearly as indebted, right? So, 698 00:39:13,139 --> 00:39:15,649 Speaker 2: because many of the mortgages, you know, they, they, 699 00:39:16,000 --> 00:39:20,159 Speaker 2: Uh, uh, was not, was not as large. Uh, in general, 700 00:39:20,250 --> 00:39:23,159 Speaker 2: I think the Chinese households save a lot to buy 701 00:39:23,159 --> 00:39:25,959 Speaker 2: a property. So I think on that one is very 702 00:39:25,959 --> 00:39:29,320 Speaker 2: different from, from the US. But more broadly, the role 703 00:39:29,320 --> 00:39:32,479 Speaker 2: of monetary policy, I do believe it has a very 704 00:39:32,479 --> 00:39:36,800 Speaker 2: important role in cushioning the downside. So people tend to 705 00:39:36,800 --> 00:39:40,469 Speaker 2: think that, you know, if there's inflation, monetary policy can 706 00:39:40,469 --> 00:39:44,090 Speaker 2: be tightened to deal with that. Actually, from a financial 707 00:39:44,840 --> 00:39:46,959 Speaker 2: Stability point of view, um. 708 00:39:48,260 --> 00:39:53,330 Speaker 2: Using monetary policy in downturns uh to protect financial stability, 709 00:39:53,419 --> 00:39:57,270 Speaker 2: I think that's a very important role. That's usually underappreciated 710 00:39:57,669 --> 00:40:00,459 Speaker 2: because we know there's a lot of leverage if uh 711 00:40:00,459 --> 00:40:03,540 Speaker 2: in the financial system. If there is a major downturn 712 00:40:03,540 --> 00:40:08,219 Speaker 2: in asset markets, then collateral constraints become binding, and then 713 00:40:08,219 --> 00:40:12,060 Speaker 2: that could be a, you know, downward spiral. So that 714 00:40:12,060 --> 00:40:15,419 Speaker 2: kind of bad equilibrium is precisely what monetary policy can 715 00:40:15,419 --> 00:40:17,260 Speaker 2: help pre uh prevent. 716 00:40:17,580 --> 00:40:20,060 Speaker 2: Uh, so I, I do believe that's a very important 717 00:40:20,060 --> 00:40:21,209 Speaker 2: role to, to play. 718 00:40:21,540 --> 00:40:24,379 Speaker 1: Don, you are taking me back to my university days, 719 00:40:24,620 --> 00:40:26,659 Speaker 1: way back in 1998 when I was a summer intern 720 00:40:26,659 --> 00:40:29,449 Speaker 1: at the IMF, Elan Goldfine and I wrote a paper. 721 00:40:30,260 --> 00:40:33,529 Speaker 1: Arguing exactly that point that the role of monetary policy 722 00:40:33,530 --> 00:40:36,379 Speaker 1: in stabilizing the financial system must be cognizant of the 723 00:40:36,379 --> 00:40:39,320 Speaker 1: corporate balance sheet situation. If the balance sheet is fragile, 724 00:40:39,419 --> 00:40:42,260 Speaker 1: you have to be far more careful than dealing with 725 00:40:42,260 --> 00:40:45,939 Speaker 1: defending the currency by hiking rates because that could be counterproductive. Zedong, 726 00:40:46,020 --> 00:40:48,040 Speaker 1: we were ahead of our time. 727 00:40:48,850 --> 00:40:52,050 Speaker 1: Um, now, property market is of course a very big 728 00:40:52,050 --> 00:40:54,919 Speaker 1: consideration when we think about financial stability because the nexus 729 00:40:54,919 --> 00:40:59,479 Speaker 1: between banks and the property sector. Don, the other thing where, uh, 730 00:40:59,570 --> 00:41:01,570 Speaker 1: in my bank and elsewhere in the region, we have 731 00:41:01,570 --> 00:41:04,489 Speaker 1: also started thinking about is the intersection of financial market 732 00:41:04,489 --> 00:41:09,089 Speaker 1: risk and climate risks. Uh, is AMRO in its research 733 00:41:09,090 --> 00:41:11,570 Speaker 1: looking at this issue when it's uh surveillance 734 00:41:11,570 --> 00:41:16,199 Speaker 2: work? Yes, indeed, uh, climate risks are one of the structural. 735 00:41:16,620 --> 00:41:20,270 Speaker 2: Uh, issues that, uh, our membership has asked AMRO to 736 00:41:20,270 --> 00:41:24,299 Speaker 2: pay attention to because these, as you know, you know, 737 00:41:24,540 --> 00:41:30,100 Speaker 2: climate risks are a very, very important existential risk. I mean, 738 00:41:30,219 --> 00:41:34,500 Speaker 2: of course, for financial stability, both physical risks, risks and 739 00:41:34,500 --> 00:41:38,489 Speaker 2: transition risks are very important. Uh, so the bank, of course, 740 00:41:38,500 --> 00:41:43,250 Speaker 2: in the region, um, uh, policymakers, regulators, uh, 741 00:41:43,629 --> 00:41:48,320 Speaker 2: Uh taking a whole of system approach to climate risks. Uh, 742 00:41:49,270 --> 00:41:52,589 Speaker 2: I think broadly in terms of the macroeconomics, as you 743 00:41:52,590 --> 00:41:57,540 Speaker 2: would probably appreciate, when we think about uh climate risks, 744 00:41:57,629 --> 00:42:01,060 Speaker 2: what is the issue? The issue is that carbon emission, 745 00:42:01,389 --> 00:42:03,379 Speaker 2: it has a lot of externality. 746 00:42:03,939 --> 00:42:07,060 Speaker 2: Uh, you, you know, in this sort of situation because 747 00:42:07,060 --> 00:42:11,219 Speaker 2: one individual emitter doesn't take into account the consequences of 748 00:42:11,219 --> 00:42:15,169 Speaker 2: its action, uh, for the, for the world, for the planet. 749 00:42:15,580 --> 00:42:19,000 Speaker 2: So what is the best way to deal with this? Uh, 750 00:42:19,300 --> 00:42:22,290 Speaker 2: in economics, uh, the best way to deal with such 751 00:42:22,290 --> 00:42:26,820 Speaker 2: externalities to impose a Piggovian tax, uh, and that's the 752 00:42:26,820 --> 00:42:29,419 Speaker 2: most efficient. So carbon pricing. 753 00:42:29,850 --> 00:42:33,750 Speaker 2: is actually the most efficient way to deal with this. 754 00:42:33,959 --> 00:42:37,479 Speaker 2: But so, as we know, carbon pricing has not really 755 00:42:37,479 --> 00:42:39,949 Speaker 2: made a lot of progress. Um, 756 00:42:40,790 --> 00:42:44,709 Speaker 2: In the world and in the region, in the region, actually, 757 00:42:45,000 --> 00:42:50,159 Speaker 2: we are lagging behind Europe in terms of either imposing 758 00:42:50,159 --> 00:42:54,600 Speaker 2: a carbon tax or emission trading system, uh, a cap 759 00:42:54,600 --> 00:42:58,399 Speaker 2: on the, on the emissions. Uh, so the region, uh, Asia, 760 00:42:58,439 --> 00:43:03,270 Speaker 2: I think is lagging behind, uh, behind Europe. Uh, but, uh, 761 00:43:03,280 --> 00:43:06,120 Speaker 2: in the, in this kind of, uh, second best world, 762 00:43:06,409 --> 00:43:12,060 Speaker 2: Uh, financial, uh, policies are also very, very important, uh, 763 00:43:12,070 --> 00:43:17,739 Speaker 2: in playing its role, uh, in, uh, uh, managing, uh, 764 00:43:17,750 --> 00:43:19,049 Speaker 2: climate risks. 765 00:43:19,389 --> 00:43:21,899 Speaker 1: It's interesting, uh, Dong, I fully agree with you that 766 00:43:22,070 --> 00:43:26,739 Speaker 1: Asia certainly lags, uh, Europe in progress toward market-based pricing 767 00:43:26,739 --> 00:43:30,149 Speaker 1: of carbon emissions, but I take some comfort in the 768 00:43:30,149 --> 00:43:30,949 Speaker 1: developments in China. 769 00:43:31,459 --> 00:43:35,020 Speaker 1: Where they've done many trials and errors, and they've learned 770 00:43:35,020 --> 00:43:37,178 Speaker 1: from the errors and they're making the carbon trading market 771 00:43:37,179 --> 00:43:39,459 Speaker 1: a little more functional. But John, the thing that I 772 00:43:39,459 --> 00:43:41,979 Speaker 1: really take biggest amount of comfort is the kind of 773 00:43:41,979 --> 00:43:45,040 Speaker 1: breakthroughs in climate tech we're seeing coming out of China 774 00:43:45,040 --> 00:43:49,179 Speaker 1: and how that can certainly find solutions for many of 775 00:43:49,179 --> 00:43:50,770 Speaker 1: the problems we have in Southeast Asia. 776 00:43:51,419 --> 00:43:54,919 Speaker 2: Absolutely. I think China is a leader in green technology 777 00:43:55,179 --> 00:43:57,739 Speaker 2: and that's a major contribution the country can make to 778 00:43:57,739 --> 00:43:58,219 Speaker 2: the world. 779 00:43:58,790 --> 00:44:00,989 Speaker 1: Now, at the very beginning of this conversation, when you 780 00:44:00,989 --> 00:44:03,830 Speaker 1: were talking about the impact of the trade-related uncertainty, you 781 00:44:03,830 --> 00:44:07,069 Speaker 1: pointed out that one useful offset was the AI related 782 00:44:07,070 --> 00:44:10,428 Speaker 1: spending and the investment. Let's end this conversation on that note, 783 00:44:10,510 --> 00:44:13,899 Speaker 1: which is what's your sense of the big AI wave 784 00:44:13,899 --> 00:44:14,629 Speaker 1: for the region? 785 00:44:15,659 --> 00:44:21,810 Speaker 2: So, as I mentioned, uh, semiconductor related uh investments, uh, 786 00:44:21,820 --> 00:44:27,169 Speaker 2: and AI related investments have been growing very fast. Uh, and, uh, 787 00:44:27,179 --> 00:44:30,419 Speaker 2: a bright spot is that some of these, uh, if 788 00:44:30,419 --> 00:44:34,939 Speaker 2: the FDI uh data centers and all that, uh, related 789 00:44:34,939 --> 00:44:39,939 Speaker 2: FDI materializes that could underpin private investment in the, in 790 00:44:39,939 --> 00:44:42,820 Speaker 2: the medium term for the region. But of course, when 791 00:44:42,820 --> 00:44:44,500 Speaker 2: we are in the middle of such a boom, 792 00:44:44,870 --> 00:44:48,719 Speaker 2: Uh, policymakers always have to worry whether there is some 793 00:44:48,719 --> 00:44:52,070 Speaker 2: amount of froth in it. So we have to be 794 00:44:52,070 --> 00:44:55,110 Speaker 2: aware of, uh, risk, potential risks. If there is a 795 00:44:55,110 --> 00:44:59,790 Speaker 2: change in the sentiment, uh, towards AI, remember the internet boom. 796 00:45:00,175 --> 00:45:05,234 Speaker 2: Uh, and in the end, uh, that episode, the lesson 797 00:45:05,235 --> 00:45:08,604 Speaker 2: was that if there is not a huge amount of leverage, 798 00:45:08,794 --> 00:45:12,824 Speaker 2: the financial systems and financial markets can probably survive. Uh, 799 00:45:12,875 --> 00:45:15,395 Speaker 2: so we have to be aware in this kind of boom. 800 00:45:15,739 --> 00:45:19,459 Speaker 2: Uh, where the leverage is being built up, built up, uh, 801 00:45:19,500 --> 00:45:22,300 Speaker 2: and we want to be careful there as well. You 802 00:45:22,300 --> 00:45:25,330 Speaker 2: never know, you know, I, I think this sort of, um, 803 00:45:25,419 --> 00:45:29,409 Speaker 2: technological breakthrough, breakthroughs in the longer term are very important 804 00:45:29,659 --> 00:45:34,219 Speaker 2: for the welfare of uh uh the humanity of, of 805 00:45:34,219 --> 00:45:36,239 Speaker 2: the global economy, uh, but uh 806 00:45:36,395 --> 00:45:42,145 Speaker 2: From a cyclical point of view, there could be over optimism, 807 00:45:42,235 --> 00:45:47,084 Speaker 2: there could be exuberance and policy instruments are there to 808 00:45:47,395 --> 00:45:50,584 Speaker 2: prevent some of the excesses to be, to be uh 809 00:45:50,584 --> 00:45:52,274 Speaker 2: to lead to bad outcomes. 810 00:45:52,675 --> 00:45:58,604 Speaker 1: OK. The underlying technology is promising, consequential, fully agree. fraud, perhaps. 811 00:45:58,989 --> 00:46:01,350 Speaker 1: But what if some of that fraud leads to a 812 00:46:01,350 --> 00:46:05,870 Speaker 1: boom bust cycle? Is there a risk like a 2008 813 00:46:05,870 --> 00:46:08,270 Speaker 1: type situation because the whole world has decided to put 814 00:46:08,270 --> 00:46:10,510 Speaker 1: so much money on this technology, and if there's some 815 00:46:10,510 --> 00:46:13,469 Speaker 1: fraud and valuations, could that lead to a very painful adjustment. 816 00:46:13,830 --> 00:46:16,669 Speaker 2: So, I mean, absolutely, that's the point I was trying to, 817 00:46:16,750 --> 00:46:20,060 Speaker 2: to convey that is in this sort of boom time, uh, 818 00:46:20,070 --> 00:46:24,429 Speaker 2: regulators and authorities, policy authorities should be on guard. 819 00:46:24,889 --> 00:46:29,109 Speaker 2: Uh, don't be, uh, you know, while acknowledging the potential 820 00:46:29,110 --> 00:46:35,659 Speaker 2: of these technologies, don't be, uh, uh, complacent. Uh, you know, it's, 821 00:46:35,750 --> 00:46:39,699 Speaker 2: it's when, when there's a boom, risks are being built up. 822 00:46:39,909 --> 00:46:43,509 Speaker 2: You know, I, I think that's a very important lesson. Uh, actually, 823 00:46:43,709 --> 00:46:45,469 Speaker 2: you know, when you think about the risks is when 824 00:46:45,469 --> 00:46:46,189 Speaker 2: there is boom. 825 00:46:46,750 --> 00:46:50,120 Speaker 2: And uh if it's a downturn, it's a realization of 826 00:46:50,120 --> 00:46:53,590 Speaker 2: the risks. Risks are not necessarily being built up. 827 00:46:53,949 --> 00:46:57,759 Speaker 1: Spoken like a seasoned financial sector expert. Don, such an 828 00:46:57,760 --> 00:46:59,479 Speaker 1: interesting conversation. Thank you so much for your time and 829 00:46:59,479 --> 00:47:00,310 Speaker 1: insights. 830 00:47:01,000 --> 00:47:01,010 Speaker 2: It 831 00:47:01,010 --> 00:47:01,239 Speaker 1: was 832 00:47:01,239 --> 00:47:01,250 Speaker 2: great, 833 00:47:01,580 --> 00:47:02,040 Speaker 1: great. 834 00:47:02,165 --> 00:47:05,264 Speaker 1: To have you, Don. Um, thanks to our listeners as well. 835 00:47:05,475 --> 00:47:08,034 Speaker 1: Copy Time was produced by Ken Delridge, Violet Lee and 836 00:47:08,034 --> 00:47:11,754 Speaker 1: Daisy Sharma provided additional assistance. All 162 episodes of the 837 00:47:11,754 --> 00:47:15,544 Speaker 1: podcast are available on YouTube and on all major podcast platforms, 838 00:47:15,554 --> 00:47:20,195 Speaker 1: including Apple, Google, and Spotify. Uh, this was for information only, 839 00:47:20,435 --> 00:47:24,274 Speaker 1: did not constitute any investment advice. With respect to DBS 840 00:47:24,274 --> 00:47:26,875 Speaker 1: research and publication, you can find them all by Googling 841 00:47:26,875 --> 00:47:29,104 Speaker 1: DBS Research Library. Have a great day.