Let's get to David Chow, our guest for the half hour. David is Asia Pacific X Japan strategist at Investco. He joins from Hong Kong. David, kind of fortuitous that you're with us on a day where we're seeing pretty much a meltdown in Chinese related assets. We were talking earlier about these two COVID related deaths, just two, and the knee jerk response is to sell the market. Is this an overreaction? Well, I think that this comes on the
heels of MSCI China. The index was up twelve in the past five trading days and up November months to date. So perhaps this is a bit of markets taking a breather. And I've always thought that China's reopening would take a much longer time, and we're gonna see fits and starts as we're seeing in certain parts of China, and so I think investors should buckle up for this reopening, play buckle up. Indeed, if the experience of other countries is any guy, this is just the thin end of the
wedge in China unless they locked down severely again. So which of these two outcomes do you think it's going to happen, and which is worse. Well, I think that the lockdowns are going to perhaps be less sparse or more targeted. And the government has already announced recent measures UM to to loosen up some of the stringent COVID policies,
and I expect that to transpire going forward. I don't see any real meaningful reopening UM in China until perhaps after the dual sessions UM in March April time print. Did it surprise you that the PBOC left the benchmark lending rate to the loan prime rate at least the one year unchanged three point six five. It didn't because if you really think about it, UM cuts the five basis points here, ten basis points there. It hasn't really moved the needle over the past year. You seem loosening
monetary policy. Now, what really moves the needle is a uptake in credit uh and so consumers and also business is getting more confident in taking out loans. We started to see a bit of that move UM. And also what really moves the needle is physcal stimulus and the government has instituted a significant amount of infrastructure investments over the past year, and I think that they're they're looking at the economic data to see if they need to
implement anymore. Another challenge that other economies have had to overcome as they reopened as resurgent inflation. Do you see the securring in China? That is the one potential block SWAN that we may see next year with UM with China reopening, Certainly, I would expect cp I in China to tick up meaningfully over the next year. And that's that's perhaps one risk that's not being watched too closely. But current inflation inflation expectations remain well anchored in China.
And David I made and the the very disappointing first twenty days of exports trade for South Korea. But you see some upside for Korea, particularly tick. Can you give us the ball case? Sure? I would say that it's not surprising that we see a bit of softness due to kind of the global macro drop backdrop deteriorating and and I continue to expect that, say over the next few months, especially as the FED continues to hike UM.
We're seeing Asian central banks also hike in response. Now what I think that investors will be able to see through and already uh we've seen Korean equities rally significantly over the past couple of weeks. I think that investors will be able to see through uh, this soft hatch um that that's occurring right now, and especially as the semiconductor cycle is at the bottom right now, I think
that this presents a buying opportunity. So, with relatively elevated inflation in South Korea, we have a b okay decision this week. There had been some debate as to whether or not the tightening would be twenty five or maybe even fifty basis points. What do you think is going to happen this week from the b okay? I mean, the one has been very weak. That could be a positive if you if you tighten, yeah, I mean maybe
that will reverse course. Well, I think that a lot of this is contingent on what the trajectory of the FED is, and certainly all central bankers in Asia are trying to figure out what the tightening path that the FED is going to take and if we're going to see a downship or even a pause. And I'd say that many central banks in Asia would would actually be pausing already given kind of the deteriorating MAC and backdrop. But I think this is UM. This is kind of
a weight in sea period. And what's the app look for the one under these circumstances. Well, the one is actually appreciated over the past couple of weeks, given UH kind of a risk on appetite. But given the that the plummet in the exports number, and also the narrative that China's reopening could take a little longer and could could be a bit disruptive, I think that we could potentially see some of the depreciating effects on the wall.
I'm sorry, David. We don't often talk about the market in Malaysia, but we did have the weekend elections producing a hung parliament. One of the things that I was struck by given the success of the Islamic Party p A. Yes, you know, the really the single party with the most seats. Now gaming alcohol related stocks moving lower in today's session.
What is your outlook for Malaysia? Well, I think that UM, unlike in the U S where I think investors tend to like a divided government for checks and balances, I think when investors look at Malaysia, we certainly appreciate when there's a lot more policy certainty now with this hung government, UM, I think that this means that they're tough negotiations ahead in order to form the next government. And I think
the big change was likely for the Malaysian budget. So while policies UH could remain populist for a longer period of time. And I think that this is this is something UM that investors have to weigh. Yeah, but the Doug's point pass is a very conservative Islamist party. UM. They are known for pushing Sharia law, bands on alcohol.
Could Malaysia be hitting in a exciting new direction? Well, I think that this there there's no clear direction in terms of which party is going to take a lead, and there's certainly going to be a need to build coalitions. And I think that this you know, there's going to be a bit of political uncertainty UM, and that this could potentially weaken the Malaysian currency in the in the near term. David, we just got a few minutes lift.
I'm wondering what you consider your biggest risk is out there at the moment, as a recission and stagflation or something else. Well, I think that the biggest risk could potentially be that the inflation levels in the US are persistently high, and that the FED may have to keep monetary conditions more stringent and tighter for a longer period than expected, and this will certainly have an impact on booth global growth and and especially in places like in Asia,
especially the export oriented economists. Alright, David, Asia Pacific extrapan strategist Adam Visco, thanks so much for joining US