Let's get to our guest. And Barry is with us and as founder also managing partner at Thread Needle, joining us from here in New York, and it's always a pleasure. Happy New Year, thanks for being with us. I think we can agree that one of the key themes last year was soaring inflation and aggressive tightening of financial conditions. I'm wondering, from your point of view, does the narrative change. I know we we have to begin talking about recession, but are we in at a kind of an abrupt
turning point? Are we going to see pretty much a continuation of let's say the last quarter continuation the last quarter, Doug feels like it's the most likely to be on the cars, which is the FED continuing to raise rates because inflation just isn't down where we want it to
be quite yet. And so until we see the data coming in through January and February, that is when I think we'll have more clarity on By the way, turning the corner here on inflation data in this and the Fed's response to it, and any of you, how do base effects play into all this? Richard? When you say the base effects, you mean I'm talking about last year's numbers, of course, when the inflation started off in a meaningful
way compared to what it is in relationship to this year. Yeah. Well, I think the fact that we're starting at a point that has got prices much higher that we were means that we would hope to see the rate of inflation come down. But I think Richard, the problem we have at the moment is so much has happened over the last six months that wasn't anticipated and which the reactions are not yet um clear as to what they're going
to be. So whether it's the rate of which interest rates came up, what the real impact is that on the consumer, we still don't know yet. So far, consumer default rates, for example, haven't cracked levels that would be onerous, but we still don't know. We know that savings have been depleted, we look at inflation, you know that some elements of the U. S economy are still really suffering from outside increases, specifically in industries that are very laboral
wage intensive. So while we've seen you know, slow down and some of the core issues over the last month or two, we still don't really know yet how they're going to percolate through the US economy and whether it's going to be Q one or Q two or Q
three where before we see some stabilization. One of the stories that we've been tracking quite closely is the COVID story in China and the disruption not only to the population there, but also the second order impact, which is supply chain problem and the third order I guess effect that you could make a case for is reorganization of global supply chains and reassuring of many industries in the
manufacturing economy. Is that going to be a theme that becomes more aggressive, let's say in three The theme of chaos, Doug, I think is going to stick with us for a little bit before longer term effects. And the reason I say that is if you look at what the global response has been to China reopening. On the one hand, it's been sort of euphoria that finally there could be an unleashing of recovery and demand in China and perhaps
supply chain issues being resolved. On the other hand, you're seeing whether it's US or whether it's Australia or whether it's Europe slapping testing back on Chinese tourists and Chinese travelers coming into these nations, which suggests that you know that the West is not yet convinced that the possibility of new variants emerging is under control. So I think that's where it's going to be a bumpy ride um
for the moment. I do think that you've hit on something much longer term, which is this idea of reashoring or repatriating a lot of the areas of the supply chain that had been outsourced. And I think that this issue with covid UH really accelerated looking at that dynamic, but it was only one piece of the puzzle dog.
I think there are other issues have been driving supply chain changes, national security concerns being one of them, IP protection being another, and also the fact that China has actually become quite expensive as a place to outsource too relative to other parts of the world. It's going to take a long time for places like the US or Europe to build sufficient infrastructure to bring it all back. It will start, but I think that's going to be a multi five ten year change and supply change. I
don't think it's going to happen overnight now. And that also leads into how you've been looking at outsourcing as well. You've been using for nearly fifteen years and you've been an outsourced services CEO. So this is a trend which continues, but it must have limits. It does have limits at Richard. And there's different kinds of outsourcing. There's a kind of global outsourcing we think about, which is business process um uh bp os or call centers for example going overseas.
Or there's a kind of outsourcing which is sending own manufacturing to China, for example. But there's also a huge amount of outsourcing that happens within domestic confines that historically has tended to happen during recessions. And the reason that happens is companies and we're hearing it all the time
right now. We're trying to think about how to remove costs and transition to be more asset life like when you're in a down economy, and that means trying to take permanent labor um and turning it into temporary labor. And so for example, staffing industries tended you for well during recessions. Productivity enhancing technology tends to do very well.
And so those are the kinds of areas Richelle that I think, yes, at some point there is a cat but actually from a cyclical perspective, there tends to be some temporary or transient outsourcing that picks up during the sessionary periods as well as these structural trends over time. Do you have a sense of how that might look geographically? Is it Russia, India, China and the creation of a
solidity there? Is it Canada, the United States and Mexico maybe incorporating a little bit of South America as well. Do we seem much more of a geographic kind of fracturing of the global economy. Oh, you know, that's well, let's take Russia aside for the moment, because I think Russia has really sort of put itself in this very um sort of isolated situation given what's going on in
the Ukraine, China, and India. Is very interesting to me because and you and I've discussed this in the past, Um, Doug Intoor, is this nation that feels as though it's been becoming more and more visible in the dialogue around for example, contributions into the global food supply, movements, into
global technology supply chains, textiles. Obviously, it has been for a very long time, and you've seen India begin to tighten its relationships, for example, with Singapore and much more visible ways with the Middle East and much more visible ways UM to really try and unleash some of its potential. So I think it seeing India UM pop up more in Asia in the Middle East is something that's likely
to happen. When it comes to what used to be the North American Free Trade Association that you just touched on, Doug, you know, I think those relationships has been solidified for a very long time. I don't. I don't think those are going to change materially. I think where there's a big question mark is where Europe is going to align itself, because that is a you know, the continent at the moment struggling UM. It's seeking energy and energy independence from Russia.
It's doing a decent job at the moment, but it hasn't really got long term solutions for alternatives figured out yet. That needs a big question mark. And just from the beginning answer of your answer, that is it India the expense of China your view, I don't think it is necessarily inju the expense of China UM. And the reason I say that is just that the political structures of India and China are so different, and so the ability to drive change and reform in India versus in China
at real pace, it's just a totally different story. UM. I also think China is further ahead when you look at the massive investments that have been made into education, into stem, into tech innovation. India has done some of that, um and done some of that very successfully, but it's not quite at the same place that China is yet, particularly when it comes to manufacturing and particularly when it
comes to things like semiconductors or to electric innovation. So I think there's a lag at the moment when it comes to India versus China. So and in about sixty seconds or so, given the pullback that we have seen in equity asset prices, will be a year of m and A activity or we're going to see a little
bit in the way of consolidation. We've ready seen it was a tail in the twenty two dog, particularly in places like software, which are cash flow generative, sticky businesses, and you've just seen private equity, for example, just run at that space even though the debt markets have been shut down. So I think certain pockets we will see M and A I think it's going to be heavily skeowed towards corporate m and a UM where you've got
a number of companies flush with cash. We saw dividends bumped to record levels in some cases in twenty two where they reinstated. I do think some of that would be redeployed towards acquisitions. And thanks for making time for us on the day after the New Year holiday. Best to you for hope to see you in studio soon and Barry founder managing partner at Thread Needle, joining us here on Daybreak Asia