Let's get to our guests. Don't Chend, head of Asia macro Economic Research at picked At Wealth Management. So a lot of investors are waiting on a FED pivot, and so we had the FED minutes and there was a little bit of a change because now we understand that there's uh the futures markets are suggesting a stronger likelihood of a fifty basis point high coming up rather than seventy five. So you might interpret that as the beginning of a FED pivot. So I think we needed to
actually trying to define what is the FED pivot. Well, we think that um, I mean you really look at you need to look at the US economy as a big picture, and at this point we think that the labor market continued to be very very strong. And also you're looking at the inflation numbers, even though they possibly have already picked with still at over a percent kind of level. So at this juncture, I think it's very difficult for the FED just to claim victory saying that
we have got the mission accomplished. So we think they're still quite some amount of tightening to do going forward. So some accounts of tightening, including I guess the fact that you don't see them dialing back anytime soon. When that does happen, you know, what kind of moved to risk assets do we see? And I guess what kind
of vulnerability could be market? Well, we think that's you know, the first wave of massive selff in the market probably reflects the changing monetary conditions and so on, which had a big impact on the you know, corporate valuations. But at this moment, usually look at the corporate earnings. They're
still holding up pretty well. So we we need to be very very careful looking at you know, corporate earnings going forward when the economy actually really show showing signs of slowing down and actually have an impact on corporate earnings growth. Yeah. I like that question from Juliet because I think it's still up in the air once we get a pivot um whether the market will have already moved, you know, and you might actually go the other direction.
It's it's uh, it's perilous sometimes moving with these markets. Because we had all these FED speakers out there just talking about how tough the Fed still needs to be to get a handle on inflation. The SMP rally nine since the last FED meeting, So it does it does set up as kind of interesting going forward. Just a very quick pivot to China because that's another big area of concern in the markets. Is China moving toward a
second half recovery or still stumbling. Well, we think the worst time property is over, because the worst time, as we see it, is that when the entire city of Shanghai was locked down. That was back in you know, April June, April two June, that kind of period. But at this point, we think the recovery is very, very bumpy because you still have a lot of kind of arbitrary restrictions that can lead to disruption from time to time. And at the same time, the situations in the property
sectors seem to get worse instead of better. So that's so you're saying the second half covering in China is stumbling, and that's pretty much on par with what we're seeing from a number of analyst. Goldman cutting their China GDP forecast too for this year to three pc from three point three. But longer term, tell us why you've downgraded your forecast for China over the next five years. Well,
we think there's a couple of factors. The most important fundamentally looking at the Chinese economy slowdown that is because of changing you know, Chinese demographic structure. And one direct implication of that is that, you know, the the younger population or the younger urban population that has been growing
very very fast over the past decades. Now they're definitely slowing down and we're seeing you know, this means that a reduction in the housing demand in China, which has already shown up here, and given on top of that you have the government regulation that really really put a lot of pains in the sector. So we expect that the slowdown in property sector is going to be a main drag to Chinese growth over the next few years.
And another very important factor is increasing regulations in a lot of new industries, where previously those companies really growing without any boundary, without any constraint. Now they are facing a new set of constraints, and we think they're grocery will be slowing down. So all those factors lead to
our downgrade of longer term Chinese grocer rate. If we take a very broad look at global growth going forward, particularly over longer term, you mentioned this great divergence, and this is a mismatch between debt and your ability to grow because of higher levels of inflation. Explain well that I think it's a very important thing that we really
need to take a look at. On the one hand, you're saying that over the past decades, the governments are accumulating a lot of a lot of debts, and a lot of those debts actually were supported by the ever decreasing interest rate, so that government actually can service those debts.
But potentially we're actually getting into a new region with structurally higher inflation, and we're saying that central bank are going to push up the interest rate even though they're going to pivot as we just discussed earlier, but the longer term, we think that they're going to be higher than where we work, you know, prior to the pandemic. And this is going to put a lot of trouble on some governments where you know, they have high reliance on that. And we were just looking at the broader
d M world, particularly some of the European countries. I think there's good examples. China is another example, and we're going to have to face it. So this we think we'll lead to potentially financial instability ahead energy costal the energy crisis, if you want to put it that way, is something that we're focusing on very much globally too. And you're saying that the global economy could face a structural increase in the direct cost of energy. How do
I guess governments get around this? You know, what sort of further moves do we need to see in terms of carbon pricing? Well, of course, and the carbon pricing is a market mechanism trying to correct this externality. But again related to what is said, you know, climate change is definitely something that the governments have to address, but to address that requires a huge amount of investments. And on top of that you just mentioned we have direct
higher you know, higher direct cost of energies. All those actually tend to increase government spending, especially when the government trying to subsidize the household sector, and that actually add
to the problem with just discussed. Yeah. So so if if higher levels of inflation are going to um lead to higher interest rates and that's going to put a crimp on on countries that have high debt, it begs the question, what are the countries that have low debt that I can invest in over the next five years and sleep will at night. We're looking at a selected group of emerging markets. They are still on a at
least on a relative basis at center food. So for example, you look at the India and India still have a pretty low government detuty DP ratio and some other you know, select it e M country in Southeast Asia. We think that you know, for this region, of this group of countries, probably at least on this regard, we think they are
in a much better position. Alright, Great to have you with us, Strong Shan, head of Asia Macroeconomic researcher Pick Day Wealth Management, in our Hong Kong studio here on Bloomberg Daybreak Asia